Substantial inherited wealth can be a mixed blessing
Managing wealth can be a challenge, particularly when the wealth is inherited and substantial. The excitement of inheriting life-changing wealth is often short lived. The reality can be a life that is anything but that of your dreams.
To most, inheriting a large amount may seem like a problem worth having. Yet it often presents some unexpected dilemmas for those inheriting the wealth (and for those planning to leave significant wealth to their children). This is particularly the case for wealth recipients who have yet to independently develop their own “money maturity”.
For Alice, inherited wealth has become a burden
Alice is 30 years old and inherited $10 million at the age of 25. She revelled in her sudden riches for the first 3 years, treating herself to holidays, cars, clothes and jewellery, and denying herself of nothing she desired. However, lately the pleasure she derives from being able to afford whatever she wants has begun to wane. She longs for something more meaningful in her life.
Her wealth has left her feeling isolated, unworthy and untrusting. She dreads that opening line at parties: “And what do you do, Alice?” She fobs it off with a non-descript response, “Oh, I do lots of things” before quickly directing attention away from herself.
A good friend has been dropping hints about getting financial assistance to help fund a course he has always coveted. Does she ignore it and risk feelings of guilt, and selfishness? Or does she assist him? If so, should she lend him the money or offer it as gift? Should it be kept secret from others? Who should she say yes to and who should she say no to?
When she goes out with her friends, has she created the expectation that she will foot the bill because she has the money? What will they say if she doesn’t pay one day? Will this affect the relationship?
Alice is starting to realise that having this wealth is a far more complex and isolating experience than she had imagined.
Dealing with inherited wealth
In her book, “Dealing with the Darker Side of Wealth”, Thayer Cheatham Willis offers some important advice for those who have yet to reach the financial and personal maturity to deal with inherited wealth. She offers the following advice:
Become Financially Responsible – regardless of how many professionals you outsource your affairs to, ultimately you are responsible for the work they do. You cannot outsource your ultimate responsibility.
Willis, a substantial inheritor herself, says that one of the great lessons she learned was summoning the courage to relinquish the “I can do anything financially” attitude. Her approach to her financial situation was -“I don’t have to lower myself to even thinking about money.”
Eventually, she sought some assistance and set up her affairs so that she would live within some self imposed financial guidelines. She began using a monthly budgeting process and re-discovered how to live within her means. While initially painful she found that the financial discipline she developed was ironically very liberating. It gave her a tremendous sense of self-esteem – something she was sadly missing under her prior attitude.
Doing productive work – Whether paid or unpaid, it is important to be involved in something that feels productive. This can be a real challenge, particularly when things don’t go your way. Unlike most people, whose motivation to work is driven by financial necessity, the inheritor needs to develop alternative motivational sources to keep them committed to their work.
As Willis notes, “the value system of our mainstream society is geared toward striving for wealth, not possessing it.” While work produces its challenges, its rewards are more than worthwhile. And the money you generate from your work can offer a freedom that is unavailable from passive (inherited) wealth.
Manage relationships proactively – it is important to recognise that an imbalance of power can exist in a friendship because of the wealth differential. Acknowledging this and making a conscious effort to nullify and offset it can lead to a more open, trusting and fulfilling relationship. Ignoring it is not a good option.
Similarly, being clear in advance as to how you will handle the inevitable approaches you receive from others for assistance will overcome poorly thought through gifts and loans.
Guiding the next generation – Wealth is a great privilege and a great responsibility. Some seek to protect the next generation by sheltering them from the responsibilities and management of wealth. Yet, this approach simply promotes a financial immaturity that leaves future inheritors unprepared and often resentful.
Philanthropy and a planned giving program can provide a bonding experience for all family members and offers a good platform for introducing the next generation to the concepts of wealth. It also offers the ability for younger members to interact with those less well off and provides a mechanism for intergenerational connection.
Rather than protect future inheritors, involve them in discussions on the issues of wealth transference. Teach them about the responsibilities as well as the privileges of wealth. That wealth is not about entitlement, and involves gratitude, appreciation and humility.
Build a life that matches your wealth
Many who inherit substantial wealth are in for a life changing experience … and perhaps not as they had expected.
Money does not provide you with the ability to control more of life. In fact, for some, money ends up being the one that has the control.
Financial abundance typically encompasses time consuming planning that involves investments, legal entities, estate planning, philanthropy, relationships and work (amongst other things). By devoting the time and effort to understanding your values and objectives you can build a life that matches your wealth.