Most people do not consider what will happen after death. Why? Because it’s scary. People do not want to think about what will happen when they are not around and they cannot influence what happens in their environment. For this reason, many people do not have a will, funeral arrangements, or a plan for what will happen to their estate.
Aside from the tax consequences and keeping your files organized, what else should you consider in terms of estate planning? There is a huge personal element to estate planning because the effects of inheriting assets can be significant. This article focuses on how a large inheritance can affect someone who receives it.
Does it matter what someone receives or how much they are worth as an inheritance? People think that inheriting large sums of money, businesses, or real estate has no consequences. This is not true! Larger assets or “complex” assets (things that need to be taken care of) require energy and time to manage, and a degree of knowledge. You can hire someone to do just about anything, but then there is the element of trust and fairness if there is more than one person who will inherit the asset. The ability to make decisions and have some degree of control is very important to many people, and having to share this with another person (including spouses or family members) is challenging.
There is also the effect that comes from the inevitable changes that a business or a sum of money can bring. Why? These things can change your lifestyle permanently. Inheriting a large sum of money is like a forced retirement. Would you like to be forced to have fun? Yes, it can be argued that you will continue your lifestyle as it was before inheritance, but this rarely happens because it requires a lot of discipline. One of the key characteristics of something that is fun is that you have chosen to do it. If you have a business or portfolio to run and you don’t know anything about it and don’t like doing it, this can be a problem.
Looking at the quotes below gives you an idea of the problems involved in inheriting “life-changing assets.”
“The first generation accumulates wealth, the second generation keeps the wealth, and the third generation spends the wealth. The fourth generation would have to start over.”
“Leave enough inheritance for someone to do something, but not to do nothing.”
“With more money comes more headaches.”
“You will have to spend as much time conserving money as creating it.”
“You won’t get rich working for someone else.”
“Owning things is not as wonderful as people think. The true symbol of power is how much control you have over these things. From a tax and equity perspective, owning things is a huge burden.”
“You don’t own things. Things belong to you.”
“Keep your friends close and your enemies closer.”
Running a business or inheriting a large sum of money is a lifestyle. It’s not just about how much you can spend and what image to maintain, but also about how you can preserve your wealth, what legacy you will leave behind, who you will trust, and how to make sure you are not a target of thieves, mainly those closest to you. People are affected by large inheritances not only by what happens to them internally, but by how other people perceive them. The evidence for this comes from the big lottery winners. If you’re not ready to win a big lottery, typical results are greed followed by bankruptcy, alienation due to jealousy, a total reinvention of lifestyle and personal relationships, or maybe a big ego trip. Like most things, you need to be prepared to know what to do when a major asset arrives.
Who do you leave your estate to?
Do you want to bypass family entirely and leave things in the hands of friends, charities, institutions, etc.? There is a money and tax component to this decision, but the real driver would be: What is the purpose of including this or that person or organization in my estate? Usually there is something personal or special behind this type of decision. If someone is not inheriting something, why would that be? The consequences of both decisions will have lasting effects. Keeping things fair and justifying your decision will likely be the key to keeping your soul at rest when the time comes. Visualizing who will actually manage the assets and for what purpose can be helpful in determining how to distribute the wealth.