A 2,000-year-old Chinese proverb “Shirtsleeves to shirtsleeves in three generations” still holds up today. It intimates that the first generation works hard to create a fortune; the second generation spends the fortune foolishly; and, the third generation squanders what remains.
According to the Boston College Center for Retirement Research, two-thirds of baby boomers will inherit some $7.6 trillion over their lifetime and lose 50 cents on the dollar. When it comes to avoiding a lost inheritance, here are a few things a family should do to preserve wealth for their heirs.
Financial Literacy: Families should not only focus on the endowment but also educate the beneficiaries before the transfer. First-generation wealth builders who worked hard became self-sufficient. But subsequent generations may not have that drive to succeed or the skills to conserve prosperity. After receiving their inheritance, most recipients will buy a new car within two weeks. So don’t make the mistake of delaying access to the family fortune. Provide financial training wheels for money-smart children by teaching budgeting and delayed gratification.
Wealth Builder Option: With this option, families can choose to spread their accumulated wealth over a period of 10 to 30 years when structured correctly, which in turn reduces the overall cost, and gives families greater potential for cash accumulation over a longer period of time. For more information, contact TetonPines Financial.
Teamwork: Enlist qualified financial advisers to meet with the entire family, so the next generation has a sense of monetary values. These include tax preparers, estate planners, and trust lawyers, all of whom should have a copy of the heritage documents. As they are updated, the advisors should receive changes. Annual meetings will foster respect for wealth and accountability for financial management in the future.
Discretion: Be careful with whom you share the news of the inheritance. Long-lost relatives and friends down on their luck could ask for a “loan.” Guilt from good fortune is a downward spiral. Budget only a certain amount of charitable gifts. In an article entitled, “How to avoid being the 70 percent who squander their inheritance,” Jeff Wuorio quotes Pedro Silva of LPL Financial. “Don’t be shy about using a financial planner or attorney as your personal underwriter. If someone needs a loan, they call us and tell us the details. That shields the client from having to say no to a friend or family member.” Problem solved.
Consumer Spending: With the holiday gifting season in full swing, a reminder to keep expenditures in control is worth repeating. If the frivolous ghost of Christmas 2015 is still haunting you, don’t use your credit cards in 2016. Over 22% of consumers still have debt from last year hanging over their heads when they head for the mall. If you’re one of them, promise yourself you’ll spend less this year. It’s easy to get swept up in the excitement of the holidays; we think we’re generous when truthfully we’re irresponsible with debt. Schedule quality time with relatives or volunteer at a homeless shelter; not only will you enjoy the spirit of the season, but you’ll avoid a financial hangover in January.
These suggestions are only a few considerations to mull over. Contact TetonPines Financial for a complete financial review. They’ll be a member of your family’s team for generations to come.