People who are not properly prepared to inherit wealth can run into many problems.
Everyone is aware that it is not a good idea to let minor children inherit a lot of wealth and leave them to manage it on their own. The money would likely be wasted, the children are at risk of exploitation, and the children might then lack any motivation to go to school and find a job.
This is so obvious to people that the law does not even allow it. If minors are left a large inheritance, the court will appoint someone to manage it on their behalf until the child turns 18. At 18, they would receive the funds directly and in full. However, many people mistakenly assume that once a person matures, they are ready to handle large inheritances on their own.
Adults, particularly those who do not already have wealth of their own, can run into the same problems as minors when they inherit money. This a particularly timely problem. In the next few years, many adults will receive large inheritances they are not ready to manage, as Financial Advisor discusses in “Inheritors Not Prepared to Inherit, FIS Says.”
In the coming decades, it is expected that 30 trillion dollars will be passed down among generations. However, few of those who are set to receive this wealth understand how to manage it. Almost half do not think they will need professional advice to manage their inheritance. If this lack of planning continues, much of that wealth will be squandered.
You can avoid this problem by discussing with your heirs the proper way to plan for and manage their inheritance. You can also alleviate the problem by using trusts managed by professional trustees as a tool in your estate plan. Many parents choose a trusted adult to help guide the child as they transition into greater authority managing the funds. This allows the funds to support a person rather than trigger a spending spiral that leaves the inheritor worse off than when they started.
Reference: Financial Advisor (May 16, 2018) “Inheritors Not Prepared to Inherit, FIS Says.”