How Much of an Inheritance Should You Leave Your Kids? (And What About Your Debt?)

Do you plan to leave a legacy? What’s that mean to you? You may be considering your legacy, or you may be in a spot where you’re wondering if you’ll even have all your debt paid off in this lifetime. Let’s look at both scenarios, and see what the future holds.

While around 70% of young people are expecting an inheritance, only 40% actually have one coming ¹. The lesson here? Have the discussion, and know what you’re leaving, or what you’re being left (if possible). If you don’t know what you’re being left, don’t expect anything, or rather, “expect the worst, hope for the best.”

Before we get into the “how much should you pass on?” question, we need to address the “what will you pass on?” question.

Will Your Children Inherit Your Debt?

This is a common fear, but a mostly unnecessary one. To be concise, your child is not going to be responsible for the debt you leave behind after you pass away, in the majority of circumstances.

Most debt will typically fall to the estate to pay for first, and if the debt exceeds the estate, things will be sold, debt will be paid, and the rest will go away.

If you leave credit card debt—even if your child is an authorized user on the account—it’s not their responsibility (legally) to pay off the debt you accumulated. That being said, creditors may still try to come after your child (illegally), and even sue your child, but your kid is not responsible for the debt ². If you know you have a short time left, remove your kids from the account if there is revolving debt. It will make their life a lot easier, while they’re already dealing with such a burden.

For medical debt, insurance covers much of it (i.e. Medicaid), the estate covers the rest, but none is passed down to children, with one exception: “filial responsibility.”

“Some 28 U.S. states have so-called filial responsibility laws, which can be traced back to colonial times and (in theory) impose a duty on adult children to support their impoverished parents.”

MarketWatch | See all states with filial responsibility laws

Watch out for that. Check for your state. Plan accordingly. Even if your state has these laws, that doesn’t automatically mean your kids are responsible for your medical debt. Do your research, and if needed, talk to a lawyer.

If you have unpaid taxes on a home involved in the estate, the taxes will be taken out of the estate. If there is a house leftover, and it’s not paid off, your children will take over the payments, assuming it was willed to them. If it wasn’t willed to your children to protect their financial situation, due to an “under water” or “upside down” mortgage ³, for example, the house will go back to the bank.

Most debt is not going to flow to your children ⁴. Check with your lawyer, and review your will, because you want to make sure you leave your children with the things you intend to leave them with, and without the things you don’t want them left with.

Now that the negative stuff is out of the way, let’s venture into the good stuff…

How Much Legacy to Leave?

A quick search will reveal a thousand different answers to this question because it’s such a personal decision. When it comes to big decisions like this, it’s good to get as much input and as many ideas as possible. So here are a few…

Warren Buffett’s view on the inheritance he tends to leave has gained popularity. His plan is to, “leave his children enough money so they can do anything, but not enough that they don’t have to do anything.” Like couples, Bill & Melinda Gates and Ashton Kutcher & Mila Kunis, Buffett plans to donate most of his net worth to charitable causes. A noble gesture, to be sure, and his children are still taken care of.

Many of the world’s wealthiest people want to give their kids the gift of being self-made — letting them do it for the values they’ll learn. Makes sense to me. However, most of them still plan on giving them something. Most of us aren’t in the “wealthiest people” club, but we can still leave what we choose to leave, based on our resources.

Leaving your legacy is your decision. If you have a legacy to leave, it’s up to you whether that means all, none, or somewhere in between. Granted, if you’re leaving anything to your kids, the first step would be to make sure they’re financially responsible enough to be good stewards of the money and/or assets.

Leaving a large inheritance without prior conversation or expectations can be an “initiative sucker.” Most millionaires are self-made, and there’s a reason for that. Leaving behind kids who know they are capable of anything will ensure the legacy lasts for generations to come. Leaving a bunch of money to kids with no direction or drive will almost guarantee the legacy stops with you.

Be intentional with what you leave behind. That’s the big idea.

There’s no right or wrong answer here, but there is a responsible and an irresponsible answer. If you’re intentional, and you leave a planned legacy, you’re doing the responsible thing. If you unintentionally let whatever happens happen, you’re doing the irresponsible thing.

Here are some more ideas on how much to leave from the NY Times. See what others are doing, pray about it, talk to your mentors, talk to God, talk to your kids, get guidance from the Holy Spirit. You won’t go wrong with a well-thought-out, intentional, prayerful decision.

Further Bible Reading

• Proverbs 13
• 1 Timothy 6

Further Book Reading

• The Legacy Journey by Dave Ramsey
• The Sudden Wealth Solution by Robert Pagliarini