The 3 Biggest Mistakes You Can Make With Inheritance Wealth Management

Every year, trillions of dollars move from one generation to the next. While some people might receive a few thousand dollars in cash or assets, there are some lucky few who will receive a substantial inheritance. 

Sadly, many who receive large sums of money and assets end up misusing them one way or the other. A report by the Financial Times highlighted data that showed that around 70% of affluent families see their wealth disappear by the second generation. By the third generation, nearly 90% of it had vanished. 

Often, people misuse or squander money that could have set them up for early retirement and made life much easier. If you believe that you may come into some money in the near future, read on to find out what you shouldn’t do.

#1. Spending It With Zero Planning or Forethought

We get it, a sudden influx of money might be just what you’ve been waiting for. You feel like it’s the best time to get yourself a new car and maybe start looking for a property in a nicer neighborhood. However, here’s the thing. Even if you’ve been bequeathed a million dollars, it doesn’t last as long as you think if you spend it the moment you get it. 

Average home prices today are over half a million dollars. Odds are that if you have a million, you’ll want to get nicer plays. You spend $700,000 and buy yourself the latest Ford F150 with all the extra features for another $70,000. If you have a family, your wife and kids are also going to go shopping.

Just like that, you blew through what could be a life-changing sum of money because you failed to develop a good investment plan. This is a situation that has happened to countless Americans and underlines just how important fiduciary wealth management and planning services are. 

As Richard P. Slaughter Associates notes, these are companies that give you a full picture of your wealth and how it can support your life goals. The key part is the fiduciary term. It means your financial goals must be prioritized over the organization’s profits, and any conflict of interest must be disclosed to you. 

#2. Failing to Consider the Impact of Family Dynamics

This is another factor that causes many of the newly wealthy to stumble. People assume that with good logic and planning, like we touched on just now, wealth management is easy. However, inheritance often comes with a lot of messy strings in the form of family dynamics. 

Perhaps an uncle had given you money as a ‘gift’ and now learns you’ve come into wealth. He may come knocking on your door after forgetting the definition of the word gift. Perhaps your brother with an addiction problem is in a lot of debt, and you feel a deep obligation to help out; however, your wife has strong feelings about it. 

This is a tale as old as time. The Times recently showcased a perfect example of this divide. One sibling was left with £60,000 while the other was given £120,000. They noted that these inequalities can create a lifetime of resentment between once close family members. 

Sometimes, the situation can be so dense that you regret being responsible for the money. It’s in these moments when people are frustrated that they choose to make irrational and on-the-spot decisions with their finances. They decide to ‘trust their gut’ and repay the uncle when there was no obligation, or donate 50% of their inheritance to their brother. 

Thus, be extra careful and ensure you’re grounded so that you don’t let emotions make decisions for you.

#3. Doing Nothing With Your Money

Unsurprisingly, it’s natural to go into a “deer in the headlights” state and simply sit on your wealth indefinitely. People become so afraid of spending their new wealth that they never do anything with it. It seems like a safe option, but since inflation exists in this world, the longer you wait, the more your money goes down in value. 

This is common for those who have no outstanding debt. They have a secure job, no dependents, and no real urgent need. If you don’t want to speak to experts, at least put a portion in an index fund. This is one investment that is reliable and gives you the time to take action. 

The fact is that inherited wealth is incredibly powerful. It’s a shortcut to immense wealth, outpacing every other form of legal wealth generation. Investopedia points out that billionaires in 2023 earned more via inheritance than entrepreneurship, which is surprising to say the least. The specific data reveals that $150.8 billion was inherited by 53 heirs. This is more than the $140.7 billion earned by 84 self-made billionaires. 

All things considered, being left an inheritance is a blessing, but it can also make things complicated if you fail to manage your wealth properly. Thankfully, there are so many resources to take advantage of today. Either get the help of experts or start reading up; either option would be better than sitting on your money or spending it irrationally.