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Much has been written on the effects of structuring inheritances… too much money in the hands of an inexperienced youth for example, may foster a spendthrift tendency. Leaving too little to family while charities receive the bulk of your life’s hard work may cause resentment. Too much or too little discretion on the part of someone who maintains control of an inheritance for the benefit of someone else may cause problems too.
All inheritances will affect the receivers. If you are close with family, you may be surprised to learn that inheritance beneficiaries may feel vast amounts of guilt in receiving money from a loved one. These monies tend to feel "unearned" and some receivers may even unwittingly sabotage the best laid plans of their benefactor as he or she tries to dislodge themselves from the money that “doesn’t belong to them” or is felt to be "blood money" as it dredges up memories of their loved one's loss, causing emotional pain.
“Overnight Wealth,” as I call it, has a great dark side. Too much money in the hands of someone who believes that the endless pursuit of pleasure and consumption will lead to happiness can have devastating consequences. There is often a “honeymoon” period that follows receiving an inheritance, and afterwards, many beneficiaries of large amounts of money, begin to wonder just why it is they “get up in the morning.” This eventually leads to feelings of alienation, worthlessness and a sense of no longer fitting in with the familiar “real world” of their prior lives or with those around them. Enormous lottery winners are notorious for having their lives run amok following their winnings. We humans seem to thrive only when we are continually challenged and feel a sense of purpose and contribution in our lives.
The question of how much money is “a lot of money,” comes up frequently in our work with clients. The answer lies in the eyes of both the receivers and givers of the inheritance and their financial “framework” before the inheritance passes. Famous investor, Warren Buffet said, "[The perfect inheritance is] enough money so that they feel they could do anything, but not so much that they feel they could do nothing." Very well said, Mr. Buffet!
The proper structuring of arranging an inherited gift to someone or to an entity can range from the relatively simple, to the extraordinarily complex. Our job is sift beneath the feelings and develop strategies that fit the realities of all concerned.for the benefit of all parties.
When leaving an inheritance to someone, consider how you feel about the following:
- Control of the Asset - this issue addresses what degrees of freedom the receiver has or does not have, with an inherited asset.
- Income - The ability of the receiver to enjoy income generated from an asset, while perhaps not having access to the principal.
- Current Equity and Implications of a Sale of the Asset - This aspect of an inherited asset addresses whether the asset is owned outright (assuming no mortgage or other debt) and what the effects would be if the receiver were to sell the asset, with an eye toward the tax issues and the financial planning value of the receiver selling the asset and redeploying the proceeds to fit their own planning objectives.
- Future Appreciation - Who will benefit from a rising value? The receiver, the receiver's children, a charity, etc?
Each of these elements above can be adjusted in varying degrees to the assets passed on to heirs. Freedom and flexibility with an inherited asset can be:
- Denied
- Limited
- Discretionary
- Delayed or
- Granted
The decisions regarding the structuring of the issues above are ultimately very personal. Every family is different. The various family dynamics, feelings, levels of financial management abilities, personal needs, etc are always unique. There is no right or wrong approach.
RIIA can help you with these worrisome and confusing decisions. Request more information or call us at
480.556.7033
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