By Dr. James M. Dahle, WCI Founder
We have decided that we're not going to leave anything to our kids after all. “Why?” you may ask. We are worried that we are ruining their lives.
It all started last year on a spring break vacation. My son discovered that his seat on the plane was back in the “cattle car.”
You see, when he went out with me on a speaking gig to San Francisco last year, we were upgraded to first class (I now have Gold status on Delta), and we sat in the very first row. He had never been the first one off the plane before. Now, he thinks that's normal and complains when he doesn't get to sit in first class, much less the first row of first class. The other kids are just as bad. We took them to Great Wolf Lodge for one night of the trip and visited their indoor water park. The next night? Motel 6. They didn't even want to go to the pool. The 16-year-old doesn't want to have to drive a “hand-me-down” car now that the oldest has gone off to college. And the oldest is mad she didn't get to take the car with her. There's always something.
“The boat isn't big enough to take all my friends.
The car isn't Tesla enough. My friends have Teslas.
The theater seats don't recline enough.
He touched me.
She gave me a dirty look.
We're out of my favorite treats.
Why do I have to move out of my room when company comes?”
Well, we're sick of it. And we're going to do something about it.
Economic Outpatient Care
Personal finance enthusiasts have long been aware of the concept of Economic Outpatient Care. This comes from a chapter in The Millionaire Next Door which demonstrated that adults who were given significant money by their parents actually were far more likely to become “Under Accumulators of Wealth.” Well, if it is bad to give them money as adults, it's probably even worse to give them anything nice while they're still minors. But we don't want to have to suffer. So, we've implemented a two-level standard of living in our house. Some examples:
- We have a door with a lock on it. They no longer have doors on their rooms.
- We eat filet mignon and shrimp. They eat mac and cheese.
- I eat Life Cereal and Crispix. They eat bagged cereal, but we only buy it past the expiration date.
- We fly first class on vacation . . . and then pick them up at the train depot when they arrive.
- We ride in luxury cars. We hired a chauffeur with a 1982 Chevette to bring them and meet us at their soccer games. (They now have to earn the money to pay the fees for soccer.)
- We wear $200 jeans. Their jeans have rips in the knees. (This doesn't seem to bother them much, for some reason.)
- We have house cleaners come over every couple of weeks. But they don't clean their rooms or bathrooms. In fact, they empty the dirty mop buckets into their tub, toilet, and sinks and throw the collected garbage from the rest of the house into their bedrooms.
- We send our clothes out for a laundry service. They wash their own. On washboards in a bucket of cold water in the backyard.
Disinheriting the Kids
As you can tell, we've had it with our spoiled kids. It isn't that we don't love them. It's that we DO love them. And we think it's impossible for them to adopt our lifestyle and still turn out as good people. But we're going beyond just making them artificially suffer in their youth. We're also basically disinheriting them. That turned out to be harder than we thought.
Decanting the Trust
As you may recall, part of our estate plan is a Spousal Lifetime Access Trust. While Katie is the main beneficiary of the trust, the kids were secondary beneficiaries. That's a problem, especially if we keel over any time soon. If that happened, they were going to get a bunch of money at ages 40, 50, and 60. No more. We have decanted that trust into a new one. We still had to keep them as beneficiaries, but now they don't get their inheritance until they're 90. And then only if they can pass an almost impossible personal finance exam.
Killing the 529s
We also have saved up sizable 529 accounts for college. They have even put some of their own money into them from time to time. Our college freshman didn't seem very motivated to apply for scholarships last year. We think part of it was that she thought she was on a parental scholarship. Well, no longer. The fun thing about 529s is that the beneficiary can be changed at any time. We actually own the whole thing. So, we changed the beneficiaries to their cousins. Now our kids get nothing, and we can ruin our nieces and nephews instead. Just kidding. We don't want to ruin them either. Remember, we love these kids. We've taken the money out of the 529s completely, even with the penalty for doing so. Most of the money was spent on a new wakeboard boat and a truck to pull it.
Charging Them Rent
We thought it would be beneficial for those kids to start really learning how life is. Not only are we making them prepare their own tax returns, but they're getting an adult-style budget. They pay for their own cell phone bills, their own gasoline, their own clothing, and all their own entertainment. No more allowances. It's called a job, kids, and we both had them.
But we had to go above and beyond that. You see, they've got sizable UTMAs (their 20s funds) and Roth IRAs. Those are both technically their money, so they can only be spent on stuff that benefits them. Well, we've got a lot of expenses that benefit them. Room. Board. Their share of the health insurance. They're now paying us for all of that using their UTMA and Roth IRA money. And they're not getting any discounts either.
Whitney was appalled to find out that room and board at home this summer was going to be twice what it was at college. But why shouldn't it be? She doesn't share her room at home. We figure the 10% early withdrawal penalty on those Roth IRAs is well worth the lessons learned. There are no more big fat modeling paychecks from WCI either. If they want to work for WCI, they can come to the conference and scan badges for minimum wage. If they don't want to do that, they can go get a real job. I know those UTMAs were supposed to be their “20s fund,” but we think using them to pay for their teens will teach them a lot more about life.
We expect by the time the younger ones leave home, they won't have anything left in their UTMAs or Roth IRAs at all. Perfectly disinherited and ready to achieve on their own. Now, they can donate plasma for their grocery money, like I did in college. If they even get in, that is. We're not giving them any application tips anymore, much less reading their admissions essays or paying for ACT study courses. Those days are over.
Overall, we expect these changes to really help our kids be solid achievers and take their appropriate place in this great society of ours. They'll be so much more proud of themselves when they realize how much they can achieve on their own.
What do you think? Have you disinherited your kids yet? Why not? What did you spend the money on? How else are you celebrating April 1? Comment below!
The post Why (and How) We’re Disinheriting Our Kids appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.