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Q & A: Inheriting 101- Part 2

Updated: Sep 20, 2020

5. Why is it important for those who inherit money to consult an advisor?

Consulting an advisor is an important step because of the many aspects of wealth management. In fact, it is essential for most who have financial wealth to consult several advisors: CPA, investment manager(s), and estate planning/tax attorney. And if they really want to be comprehensive, then it is wise to attend to the psychological challenges and consult a wealth counselor as well. Contrary to popular opinion, inheriting money is not “Easy Street.” If you want to handle it well, it requires time, attention and work. Of course, it can be a positive in your life; it’s just that it can also easily lead to negative consequences. Handling it well is not the simple fantasy that many outsiders imagine.

6. Are people who inherit money more likely to squander it? Why or why not?

Those who acquire money easily often don’t understand the complexities of managing it well, and thus lose it easily – “easy come, easy go.” Squandering money is often caused by poor preparation, neglect of one’s own earned income and lack of wealth management understanding. As the old saying goes, “if you fail to plan, you plan to fail.”

7. Do you help clients/heirs decide how to use their money? How?

I help clients with the psychology of how to use their money. At its most basic level, this includes (1) saving and investing, (2) spending, and (3) philanthropy. These priorities, actions and behaviors are all based on the clients’ values. So we usually begin with values identification and clarification, and build on what clients learn about their values.

8. What are the first three things you would suggest heirs do?

If an heir is not used to managing financial wealth, my advice is: 1. Do nothing with the money for a year. Keep it safe. 2. Use that year to read, interview advisors and consider your options. 3. Use that year also to explore what the money is in your life and what it isn’t. How can you make sure this money helps you and doesn’t hurt you in any way?

9. Why might paying down debt be a good use of inherited money?

Carrying debt is now mainstream American behavior. Despite its popularity, it is actually a poor way to live. There are several reasons for this. First, there is the inevitable stress that anyone carrying debt experiences. This kind of stress is detrimental to physical and emotional health. Second, when living with debt, your lifestyle lacks integrity. When you are living beyond your means, you are fooling yourself. Third, it is very difficult to cultivate good saving and investing habits when carrying debt. That said, there can be carefully considered reasons to carry business debt, and very occasionally, when income level is well established, using a mortgage can be a reasonable choice. Never borrow against depreciating assets. So, yes, use your inherited money to pay off debt and make a decision to stay debt-free.

10. Why might investing for retirement be a good use for inherited money?

Why wouldn’t investing for retirement be a good idea? I can’t think of one reason. I’m not being flippant. As a population, we are living longer and longer. It is fabulous peace of mind to know that

you have enough money to live on for however long that is going to be. Investing for retirement supports your precious freedom.

11. What advice do you give those who inherit money when it comes to deciding what to do with the money?

When deciding what to do with inherited money, I advise clients to first take charge of their life, including their attitudes and behaviors about money. This is really a prerequisite for making good decisions based on values that you have identified and explored. It also fulfills the advice I give to wait generally for a year before making any financial moves. The only exception to this waiting period is to pay off debt. There is no need to wait before paying off debt. Everything else you learn in preparing to make decisions becomes part of your education.

12. What are some ways that heirs who feel guilty can deal with their guilt to have a healthy relationship with their money?

Some inheritors struggle with guilt. This is always troubling to some degree and worthy of personal work. Guilt is a complicated emotion mixing fear, anger and self-doubt. The only way to diminish guilt is to gather your courage and examine the source within you. It is not useful to blame it on anyone else. In fact, working with your own personal history and values is the only way to let go of it. Often a therapist can help you, or to begin, you can work through my book, Beyond Gold: True Wealth for Inheritors. It is a workbook, available on Amazon, full of exercises to help you gather your courage and gain the insight you need to choose attitudes that will work better for you.

13. What is the reason for the “shirtsleeves to shirtsleeves” phenomenon, and what does an heir have to do to avoid it?

Research completed by the Williams Group wealth consultancy confirms that “70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third [generation].” (Chris Taylor/Reuters June 17, 2015) If you want to be in the minority of those who do not lose their money, you have work to do. It is one of the ironies of inherited wealth that protecting the assets, stewarding them, making a majority of good decisions along with a minority of bad ones, and generating income yourself is regarded as some kind of “Easy Street.” There is nothing easy about any of this; these steps require priority, education and vigilance. For a myriad of reasons, many inheritors assume they do not need to do much of this work. Nothing could be further from the truth if the goal is healthy personal and family psychology, and effective stewardship of assets.

My own bias is that the real damage caused by the loss of the family fortune is not even the loss of dollars but the loss of confidence, well-being and self-respect of the unwitting heirs who lose it. They rarely see the price they are going to pay for losing the money.

My observation is that people who grow up without financial wealth typically experience an urgency regarding support and financial stability that is not typical for kids in wealthy families. For kids in poor and modest income families there is a sense of finite resources that common sense translates into motivation to generate income. But, kids in wealthy families usually only know abundance, and often even parents’ efforts to help their kids develop motivation fall flat. Growing up, I observed parents in wealthy families assume their offspring did not need any coaching on how to handle the financial resources that would be left behind. These wealthy parents mistakenly surmised their children would be as grateful and careful with the wealth as they had been. Once I began to reflect on the dynamics involved in these situations, it led to my passion to convey to benefactors and inheritors the alert that, while it is entirely possible to handle financial gifts well, in doing so one is swimming against the tide. The swim is the transfer of values from one generation to the next, the training in financial literacy, the constant attention to communication skills in the family, the development of spiritual strength among all family members, and the expectation of competence from rising generations.

I often think about the trajectory of life. Most of us hope to reach old age. And sitting in that rocking chair looking back on our lives, we will inevitably consider the legacies we have crafted. None of us would want to be known as “the one who blew the money.” So get to work. It’s fun to beat the odds.

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