Who Will Inherit Your Financial Wisdom? Passing on More Than Just Wealth
I would like to wish all of my clients and colleagues a very happy, prosperous and healthy New Year. Being around family during the holidays reminds us of the importance of the values we have instilled, or try to instill on the younger generation. It is with this in mind, that I write my first update for 2018.
Many people who inherit wealth or small businesses are at significant risk for essentially squandering the wealth. An Ohio University study shows that an astonishing 33 percent1of all beneficiaries lose their entire inheritance within two years of receiving it. The ways they manage to do so are as varied as the imagination, but in our experience we have seen a common thread: mismanagement.
How beneficiaries lose their way
There are a few key ways beneficiaries struggle to make the right financial decisions with their inheritances. For example, a beneficiary might not have been brought up with a strong education on the basics of money management. Or, even if the beneficiary knows what to do to properly manage their money, it can be challenging to manage an inheritance while dealing with the loss of a loved one.
A beneficiary may invest unwisely, resulting in significant losses, or spend their wealth on an unsustainable lifestyle, rapidly exhausting an inheritance. Worse still, some heirs develop a sense of entitlement that can lead to problems like the well-publicized “affluenza teen,” Ethan Couch.
No one wants these outcomes for their family.
While a live-in-the-moment attitude can serve young people as they gain life experience, it can be very dangerous when large sums of money are added to their lifestyle. Often, they do not have the same experience and hard-won wisdom as the generation that acquired or built the wealth.
Share your wisdom with your wealth
One of the greatest gifts you can leave your children, grandchildren, and other beneficiaries is the gift of your wisdom. Sharing the stories, struggles, and journey of success that brought you to where you are, along with the money wisdom you’ve gained, is as important as leaving a financial legacy in your will or trust.
Money alone can become just as much a burden as it is a gift if it doesn’t go hand in hand with practical guidance. Let your beneficiaries know that they can help build a legacy of wealth that supports them throughout their lives and for generations to come.
3 tips to set your beneficiaries up for success
Here are a few pointers for setting up your beneficiaries for success:
- Use estate planning tools like discretionary and incentive trusts. In addition to talking with your beneficiaries about financial well being, you can also use certain types of trusts that will reward their smart behavior. Discretionary and incentive trusts are two such tools that can hold payments until beneficiaries complete college or withhold payments unless beneficiaries are proven to be clean and sober. If you don’t already have a trust like this, we can work with you to tailor these types of trusts to your unique family goals.
- Talk to your beneficiaries about the right way to use their inheritances. Tips about compartmentalizing money for paying off debts and saving for the future might be second nature to you but a complete mystery to your heirs. Teach them the basics of money management and share your knowledge about smart investing. When you define a purpose for the money you’re leaving, you enhance the meaning of your estate plan.
- Bake your wisdom into your estate plan. Consider adding a supplement to your plan that includes your stories, struggles, and journey of success so your wisdom is passed to the next generation along with your wealth.
You don’t have to go it alone
Feel free to contact us to ensure that your will or trust is completely up-to-date and that we’ve included strategies like lifetime discretionary trusts, incentive trusts, trust protectors, substance abuse protection language, and more, so that your family’s financial legacy is as safe as possible. We can even help you navigate discussions with your beneficiaries so you can rest assured that you’re doing what’s necessary to make your legacy last.
1 Ausick, Paul. “A Third of Americans Blow Through Their Inheritance.” 247wallst.Com, 8 Nov. 2015, 247wallst.com/investing/2015/11/08/a-third-of-americans-blow-through-their-inheritance/.