How to Prevent Your Heirs from Squandering their Inheritance

Studies have shown that the largest contributing factors to generational loss of wealth are a lack of communication and trust among family members and the failure to prepare heirs. Often, fear is what underlies the lack of communication and trust that inevitably leads to unprepared heirs. Following are some of the fears that prevent people from communicating with their loved ones about their wealth.

For example, one common fear is creating an entitlement mentality in heirs, possibly even leading to them squandering their inheritance. We have all heard horror stories about trust-fund kids who had no motivation to do anything other than relax and enjoy life because they knew that a large inheritance would be available for spending once they reached a certain age. Knowing that the large inheritance was coming, they did the bare minimum to make sure they would receive it, but in the process, ignored opportunities to get the most out of their education or learn new skills because, in the child’s mind, the future was already mapped out.

By working with an experienced estate planning attorney, you can craft an estate plan that avoids this outcome. Your estate plan could include incentives for your beneficiary, or could include restrictions on what the money can be used for – such as tuition, starting a new business, or the purchase of a first home – eliminating the idea that the money is available for luxury or frivolous items.

Utilizing a trustee to manage an inheritance for a beneficiary can be an extremely effective estate planning tool. Make sure you feel confident that the trustee understands your concerns about discouraging entitlement mentality and encouraging beneficiaries to develop a strong work ethic can be an extremely effective estate planning strategy.

Creating a comprehensive financial and estate plan with the help of experienced advisors, in addition to having an honest and open conversation with your loved ones about it, are two of the first steps to overcoming the fears that arise about money and inheritance.