If you leave your children an inheritance, what will your kids do with your money one day? Most people I meet who receive an inheritance manage the cash influx well. Together, we create a financial plan and then invest according to the plan.
However, sometimes the recipients of large lump sums, having never dealt with a significant amount of money at one time, blow it. Instead of investing the funds, they change their lifestyle to accommodate their newfound wealth. In other words, they start living the high life.
3 types of beneficiaries
- The saver
- The ignorer
- The spender
If you’ve raised children who are careful with money, they will likely be able to save the inheritance, and perhaps even bequeath some of it to the next generation. Typically, I see heirs gifting (either to family members or charity) a portion and saving (investing) the rest.
If your kids have no interest in dealing with money, they may ignore important steps like reallocating the investments to suit their situation. After all, their financial position is different from yours, so the investments may need to be adjusted.
But the worst cases that I’ve seen have been the spenders. Some people have received hundreds of thousands of dollars (or more) and instead of planning their investments carefully, they planned vacations! Rather than shepherding wealth, they’ve burned through it. It’s sad to watch since the parents worked hard and saved, and the kids didn’t follow their example.
Teach your children not to blow the inheritance
I often ask clients for a ballpark figure about what future inheritances they expect. Most can give an answer, but some have no idea whatsoever. They’ve never spoken to their parents about money. Huge mistake! Start talking with your kids today about money issues … slowly… so that you all share the same understanding.
Watch an online webinar (invite your future heirs too!) on “How to Use and Manage Inheritance Money” at Profile-Financial.com/webinars
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published September 25, 2018. Updated April 2020