You worked pretty hard to build up a legacy for your kids and their kids to inherit and you’re rightfully proud of what you’ve accomplished.
Unfortunately, it isn’t easy to keep that money in the family and growing — there’s generally a “three generation” rule that says that your grandchildren are most likely to be right back at the starting point of trying to build wealth all over again.
Here are the usual problems:
- The financial aspects of estate planning don’t focus enough on the heirs — making sure that they understand how to handle the wealth that they inherit.
- The younger generation may lack the self-discipline not to run through the wealth they’ve inherited.
- The older generation indulges the younger generation too much, fostering a sense of financial dependence and a lack of knowledge or passion.
- Inheritors often attribute their successes to their inherited wealth and don’t see the value of their own accomplishments.
- Inheritors may feel guilty about the wealth — after all, it did reach them because someone they loved died.
- Some heirs may — just like any other segment of the human population these days — have a substance abuse problem, which will destroy inherited wealth quickly.
So what should a wealthy parent do if he or she doesn’t want to give almost everything to charity?
The answer, according to experts, is to start educating the next generation about financial management as early as possible — from the cradle if you can do it. If it’s a bit late for that, financial advisers and attorneys say that it isn’t too late if you take specific steps:
- Talk about finances. This is not a good subject to keep off the family table when you have wealth to pass on.
- Teach budgeting early. Make sure that kids have an allowance that can be budgeted but that there are certain expenses that have to be paid — or consequences that have to be dealt with if the bills aren’t paid.
- Allow your heirs access to some of the money and decision-making processes early. That way, they get used to the process of making decisions financially and aren’t as overwhelmed later.
An experienced attorney can provide more information on how to proceed with your lifetime legacy intact into the future once you’re gone.
Source: Kiplinger, “5 Strategies to Keep Your Heirs From Blowing Their Inheritance,” accessed Nov. 02, 2017