Research shows that directly inheriting a large sum of money can have harmful consequences. According to MarketWatch, a study found that a third of people who received an inheritance had negative savings within two years of the event.
Watertown Public Opinion’s recent article “How to make sure you leave inheritances that are helpful, not harmful” says that, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors.
However, a minority of heirs don’t mishandle their inheritances. Nonetheless, it’s good to explore exactly what you intend the gift to accomplish, prior to leaving money or property to someone. It’s also important to consider the possible negative consequences of a gift.
Determine if the gift will actually cost the recipient time or money. As an example, leaving the family home, vacation property, land, or a ranch to someone can often cost them money they may not have in maintenance or taxes.
You should also consider if it results in causing difficult emotional issues between siblings, and whether it might encourage bad financial behavior. If a beneficiary hasn’t developed healthy financial behaviors, a significant inheritance might actually have the consequence of creating new financial troubles instead of addressing existing ones.
A good way to make certain that your bequests are helpful is to explore your own intentions. Ask yourself if you want to leave enough money for the beneficiary to become financially independent and if you’d you like your bequest used in a specific way, like to pay off debt or fund education.
Do you care how they spend the money?
Another way to provide for thoughtful, conscious inheritances, is to speak with the intended recipients.
Ask them directly whether someone would want a bequest, such as a valuable art or coin collection or perhaps an expensive vacation home. Discuss the options and possibilities and don’t simply take for granted what your heirs might want or what they might do with an inheritance.
Leaving a family member an inheritance can be helpful in some instances, but may have exceedingly destructive consequences in others. No two situations are alike, and if you want to increase the chances that your bequests will be helpful, explore and improve your own relationship with money. Examining that relationship can help make sure that what you leave to heirs will be a benefit not a burden. Talk with an experienced Elder Law Estate Planning attorney to explore ways to protect your loved ones’ inheritance.
Reference: Watertown Public Opinion (Nov. 1, 2021) “How to make sure you leave inheritances that are helpful, not harmful”