Solving the King Lear Problem

As we’ve been diving into the inheritance process, Boomer realities, Next Generation realities, and the current state of play, I came across an article in the Financial Times by author Jonathan Guthrie titled “Why we should give our heirs their inheritance sooner” which really struck a chord. (Programming note: FT does great work, consider subscribing, as this synopsis is only part of the value.)

The article highlights three main reasons why allowing the Next Generation to access a portion of their future inheritance today is valuable for the family:

• Function of Need - “Drip feeding them spare capital would give them more financial and physical elbow room.”

• Time to Grow - “Multiyear compounding is a potent force, as anyone who has managed their investments over decades will know.”

• Taxation - The UK estimates that by 2030-31 around a tenth of estates will be hit by inheritance tax.

The FT is taking a UK-focused approach with that last point, while here in the US there are ways to help do this tax free for both generations, with no new debt for Mom and Dad, and with no money leaving Mom and Dad’s bank account.

That said, we have to acknowledge what Guthrie calls “the King Lear Problem:” Elderly people fear their progeny may neglect them without a chunky inheritance to look forward to. I hear that, I truly do, as I have children, too. But a nuanced and reasoned take could be that having a healthy relationship in general and especially around the process of inheritance, rather than focusing on the value of the estate, renders this point somewhat moot.

It’s often said that if you want a good partner, you first need to be a good partner. When Mom and Dad know that being upfront, honest, and transparent about the process of inheritance actually means we are taking care of them, taking care of the family, and taking care of their legacy, it will mitigate to eliminate “the King Lear Problem.”

Proper planning, appropriately accessing a portion of future inheritance today, and the generations working in concert is how we move our families forward…