How will your children handle their inheritance from you? Will they wisely use it to enhance their financial well-being…and the well-being of their children? Or…will it act as a disincentive to productive work as well as personal and financial responsibility?
Not sure? According to the Institute for Preparing Heirs, seventy percent will lose their entire inheritance within a relatively short period of time, often destroying family cohesion in the process. Interestingly, ninety percent will abandon their parents’ advisors after receiving that inheritance.
Both statistics suggest that many families fail to adequately plan for the conservation, growth, and transfer of wealth to future generations. Here are several things you can do right now to help ensure that your children appreciate and appropriately utilize the fruits of your labor.
1. Proactively prepare your children for their inheritance. This means teaching them about the responsibilities associated with an inheritance…instilling a commitment to preserve your family legacy, financially and otherwise. This is important for every family but especially so for those with higher net worth.
2. Never underestimate the importance of protecting assets! The unexpected often happens…even in the best of families. That is to say that our adult children sometimes find themselves confronted with creditors, problematic spouses, spendthrift lifestyles, and the challenges of substance-abuse, to name a few. The solution? Consider leaving a portion of your estate in a flexible, long-term trust. Doing so will allow your family to enjoy the benefits of their inheritance while protecting them from the afore-mentioned dangers.
3. Protect young heirs from themselves. The number one mistake made by most heirs is spending heavily and quickly. Young adults need time to emotionally mature, get established in their careers, develop sound financial habits, and…understand the value of living below their means. Once again, a longer-term trust with flexible distribution standards provides opportunity for heirs to mature before having unrestrained access to their full inheritance.
4. Teach your heirs about the value of trusted advisors. Heirs often try to manage their own investments and take more risk in the process since they did not earn the money themselves. This may lead to unwise investments that lose money or strategies that expose them to considerable volatility. Make sure that they have a relationship with your family’s advisors (wealth manager, attorney, insurance specialist) and…that they will need their services more than ever in the future.
Remember – your heirs are the stewards of your family’s legacy! Prepare them well and they will be far more likely to properly enrich their lives and prepare the next generation.