Are you expecting an inheritance? Don’t count on it.
A 2014 study by the Insured Retirement Institute had a startling finding. In the past, about two-thirds of Boomers thought leaving an inheritance was important, but in 2014 that number plummeted to just 46%.
In my sudden wealth management practice, I tend to work with the parents (and ultimately their children) who still think leaving an inheritance is important. But I’m starting to see a shift, and if you are banking on an inheritance to pay off debt, save for kid’s college expenses, or for your retirement, this shift of attitude is not good news for you.
If you are expecting an outright inheritance, you may need to think again. Many clients who are concerned about the effects of sudden wealth are taking matters into their own hands now. You want an inheritance? You’re going to have to prove you can handle it first.
In my work with wealthy clients, here are a few things they want to see before they make a large gift or feel comfortable leaving a large inheritance:
Make good (and recent) financial decisions.
Parents aren’t looking for perfection, but they are looking for a pattern of good financial decisions. Even if you’ve done things that have ruined your finances in the past, most parents are all too happy to let these go if they see recent improvement. It might take creditors seven years to forgive your bankruptcy, but it will only take parents a fraction of this time if they see personal growth.
According to estate planning attorney Amy Fenelli Ciftcikara, “The more a child can prove to his or her parent that the child is taking financial responsibility in his or her own life and with his or her own money, the more likely a parent is to allow the child to have full control over their entire inheritance.”
Have some financial self-awareness.
Everyone loves a good come-back story. It’s ok that you’ve made mistakes. In fact, some families secretly admit to me they want to see mistakes — especially small mistakes earlier on. Bad decisions are a great way to learn — but this is key if you want any kind of inheritance — you MUST actually learn.
If you make the same mistakes over and over and over, it shows you not only have bad judgment, but worse yet, you aren’t able to learn. Admit to bad decisions you’ve made in the past. This consciousness is critical for parents to see. It is your job to communicate why you made the decisions, why they didn’t turn out well, and that you wouldn’t make the same decisions again.
This may sound overly simplistic, but you’d be surprised to see the number of mistakes that continue to get repeated. Parents are craving for their kids to look them in the eye and say, “I really screwed up and here’s how, but more importantly, I know going forward what I need to do.” Many parents are also working with their planning attorneys to encourage good financial decisions by building incentives into trusts and estate planning documents.
Mark Ziebold, an estate planning attorney, says “Most clients have experienced family members blowing an inheritance or have heard the same from friends or colleagues. It only takes a short time to destroy what parents build over a lifetime. Based on that, many parents are requiring beneficiaries of inheritances to go through financial training before receiving distributions from a trust. If a beneficiary has a history of bad decisions then it is not a bad idea to show the parents that they are proactively learning about how to receive and preserve the wealth from their inheritance.”
Demonstrate a responsible use of debt.
Some of the wealthiest families don’t shun debt, but instead are masters at using leverage to their benefit. It’s ok if you have debt, but it needs to be debt that is used to produce a higher long-term return (e.g., student loan debt).
If you have credit card debt or an excessive car loan, this is a big red flag for parents. How can they begin to feel you are responsible with money if you continue to rack up debt on silly purchases? If you have a considerable amount of non-producing debt, re-read number two, “Self-awareness,” above.
Admit your past mistakes and inform them you have a plan to begin paying down the debt. Better yet, propose borrowing money from them at a lower interest rate so you can pay off the higher interest rate credit card debt. This shows your financial acumen and every month you pay them it reinforces your commitment. Warning: if you miss payments or fail to pay them back, you can wave your inheritance goodbye.
Show your ambition.
Parents want to see that intangible drive and a joie de vivre — a zest for life. You don’t need to be the next Gordon Gekko, but they are looking for signs that you want to make an impact with your life. Warren Buffett famously said that the perfect amount of money to leave children was “enough money so that they would feel they could do anything, but not so much that they could do nothing.” Start a business, pursue a career, or join a non-profit. Parents don’t care what you do as long as you do something.
Have a life plan.
If you’re young, you don’t need to map out your entire life, but talk to your parents about your future and your dreams. Share with them what you want to do and how you see your life unfolding. The concern among parents is that their children have no compass or plan for their life. They fear — and rightfully so — that sudden wealth will only further confuse and de-motivate their children. You need to show them you have a plan with or without the money.
Take an interest in finances.
You don’t need an MBA to guarantee an inheritance, but taking an interest in personal finance will go a long way to show you understand the responsibility of wealth. Take a course at your local community college, read books, or find a mentor. The more comfortable you are with managing money the more comfortable your parents will be leaving you money to manage.
The more you can show your parents or grandparents that you possess these characteristics the more likely they will be to leave you an inheritance. And better yet? When you do get the gift or inheritance you will be in a much better position to enjoy, manage, and keep it.
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