Breaking The Triple Taboo – The Inheritance

Our guest is Ann Perry, the author of The Wise Inheritor: A Guide to Managing, Investing and Enjoying Your Inheritance.

It’s rare to see a book about inheritance written from the perspective of the heirs. Ms. Perry’s grandmother popularized the first widely marketed Go Fish card game, helping lay the foundation for Ms. Perry’s own inheritance.

She tells us that money is the last taboo, and inheritance a triple taboo. She also reminds us that inherited money should be treated differently. We learn that with looming biggest ever wealth transfer of tens of trillions of dollars, more of us than ever will be facing the dilemmas of inheritance. What can we do to be better prepared?

Bogumil: Thank you for taking the time to talk to us. I really enjoyed reading your book. I’d be curious to know what got you interested in the topic of inheritance, where did the inspiration come from?

AP:

Thank you. My inspiration came from my own experience receiving a modest inheritance of $500,000 in 1993 after my mother passed away. I was quite surprised that her estate was worth as much as it was. After all, she was a grade-school teacher living on a fixed income. However, she was frugal—and she had preserved most of what she had inherited from her family.

As an only child, I was also overwhelmed by the gift of these assets, a family home, a summer home, an IRA account and various stock holdings.

At the time of her death, I was working as a syndicated personal finance writer and was knowledgeable about such topics as investments and real estate, but I lacked confidence. I realized that if I found it a challenge to manage my inheritance, other people were doubtless feeling the same way.

Bogumil: You discuss the importance of treating inherited money differently. How should we treat it, and why? 

AP:

Inherited money IS different than other money. You didn’t receive it by working hard, saving aggressively or taking a risk in the stock market. You most likely got it because someone died, probably someone for whom you cared. Many heirs feel that these assets are not really theirs; they rightfully belong to the deceased. For that reason, they can be reluctant to sell, divest or manage the assets differently—even when that reluctance is not in their best financial interests.

Regarding your question of how to treat inherited money, I think that the first step for heirs should be to acknowledge these emotional connections. With that understanding, they can then learn more about the best approach for their own financial situations.

Bogumil: Your book reminds us that we are witnessing the biggest inter-generational wealth transfer in the history. The topic has never been more relevant than today, and the challenges of inheritance are affecting more people than ever before. Is that a problem or an opportunity for many of us?

AP:

I think it can be both. Some heirs will be too paralyzed with guilt to manage their money well while others will simply squander it.

However, a bequest can be a life-changing opportunity for many. Whether the estate is small or large, heirs can put it to good use: making a career change, starting a business, paying for college, establishing financial security or giving it to charitable causes.

Bogumil: You write how money is the last taboo, that people are much more willing to reveal very intimate details about their lives than confessing their net worth. You call inheritance a triple taboo—at the intersection of money, death and family relations. Is it something you expect to change?

 AP:

It won’t change until family members begin having open communications with one another. That may mean starting the conversation by discussing your own financial situation and your estate plans to draw out other family members.

It’s also important to try to improve family relationships by mending fences with estranged siblings or other relatives. This can save much future heartache.

Bogumil: You emphasize the importance of talking to our parents about their wealth, their plans and wishes. How do we start that conservation?

 AP:

First, keep in mind that such a talk can make your parents feel vulnerable. They might find discussing their own mortality an anathema or feel that you’re only interested in getting an inheritance and not in their well-being.

To get started, consider some, or all, of these approaches: look for an appropriate time to talk (not over the table at Thanksgiving dinner); suggest that your parents get a “financial checkup” with an advisor (who will surely cover their estate planning); share relevant articles with them, and gently remind them that lack of planning could mean emotional hardship for their heirs.

Bogumil: You share with your readers detailed checklists of what we should do when our parents are still around. Without giving too much away, what’s the number one item, we need to remember?

 AP:

Encourage your parents to sign two types of documents, one giving you or another trusted person the power to make healthcare decisions and one creating a power of attorney for financial matters should they become incapacitated. While these might seem to be giving up too much control, they can in fact do just the opposite—ensure that your parents’ wishes are carried out. These documents can be tailored and designed to be used only in certain or limited circumstances.

When my mother was terminally ill, I found both documents enormously helpful. I could help manage her care with doctors and hospital staff in accordance with her wishes. Without the financial document, I would have been unable to use her bank accounts to pay her bills, manage her IRA accounts and file her tax returns.

Bogumil: In your book, you discuss the need for professional help, could you tell us what an inheritor should look for in the right advisor?

AP:

First off, you must choose a financial advisor with whom you have a good rapport and who will patiently answer all your questions. Your advisor should be willing to discuss how he or she will be reimbursed, by commission, a flat fee for advice or a fee for ongoing money management. You should be convinced that this person puts your interests ahead of their own.

Once you have a good financial advisor, that person should be able to direct you to trustworthy CPAs, insurance brokers and appraisers, serving as a kind of quarterback for your finances.

Bogumil: Our readers find the topic of children and inheritance especially interesting. How do children react to a parent’s sudden inheritance? What should we keep in mind?

AP:

Educate them, in age-appropriate ways, about managing money. Start with an allowance and then slowly increase the amounts and types of saving and spending, permitting them to make mistakes now that will help them cope in the future.

Children should have a sense of how well off the family is so that the amount of a bequest won’t be a jarring surprise at a time of loss. You should also convey in general terms how you will allocate your assets: to all to your children equally, more to one with special needs, or some to charity as well.

They might find such discussions awkward or frightening. If they have questions, you can keep them brief and matter-of-fact. The goal here is to avoid leaving them blind-sided. It’s also important to impart your values and the need to be self-sufficient and create meaning in their lives, so they don’t feel entitled.

Bogumil: Could you talk about the emotional roller-coaster that inheritors often experience?

 AP:

I’ve identified Six Emotional Stages of Inheritance. Not everyone will experience all of them or in this order:

Disbelief—Some heirs still feel like children, even though they’re adults. They may think, “not this, not now.”

Anger—This feeling could stem from a sense of abandonment or a grievance that a parent left the estate in a mess, with no instructions.

Euphoria—Once the reality of the bequest sets in, some heirs may feel exuberant because they’ve never had so much money and they begin thinking of all that they can buy or do. But most should realize that while they can do some things, they can’t and shouldn’t try to do all of them, or they will spend it all.

Guilt—I’ve spoken with many heirs who feel guilty that they inherited only because someone died. They may find it difficult to manage their money or to dedicate it to things that their parents wouldn’t approve.

Paralysis—This may stem from reluctance to sell assets or use them differently from their parents and from fear of making poor choices.

“Heirworthy”—After a period, when negative emotions have run their course, heirs will begin to appreciate what they’ve received and the difference it can make in their lives. They learn to preserve it and invest wisely to leave for their own children and deserving charities.

Bogumil: Thank you so much for your time, we really appreciate it. We hope our readers will find your book equally interesting and inspiring.

Ann Perry’s The Wise Inheritor is available on Amazon.

Available as a video podcast or audio podcast (iTunes and Podbean).

This presentation and its content are for informational and educational purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but not a representation, expressed or implied, as to its accuracy, completeness or correctness. No information available through this communication is intended or should be construed as any advice, recommendation or endorsement from us as to any legal, tax, investment or other matters, nor shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security, and has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient. Any reference to a specific company is for illustrative purposes and not a recommendation to buy or sell the securities of such company.

How We Give Matters More Than How Much We Give

Inheriting a fortune – or being lucky enough to leave one to your children – can be a mixed blessing. As the largest-ever intergenerational wealth transfer is upon us, it’s important to realize that how we give may matter more than how much.

We at Sicart Associates have spent our careers as investment advisors to families, and lifelong students of wealth growth & preservation. These are complex concerns. Every family is different, and the financial world does not do us the favor of staying the same through time. Strategies that have worked for one family may be inappropriate for a later generation; earners and inheritors have different approaches to life. Our goal, always, is the financial well-being and prosperity of families for generations.

This concern is urgent as we have already started to experience the great wealth transfer of $12 trillion from the generation born in the 1920s and 1930s to their children, the baby boomers. Over the next few decades will come the unprecedented wealth transfer of $30 trillion from baby boomers to their heirs. (1) Two-thirds of the world’s wealth is currently in the hands of first-generation wealth creators with limited experience in wealth succession planning.

It’s a worldwide phenomenon. The US, with expected average inheritance of $177,000, ranks only 6th in the world, with Australia ($500,000), Singapore ($371,000), the United Kingdom, France and Taiwan leading the pack (2).

This massive shift creates obvious challenges for the families involved. In a multi-part series of articles, we would like to explore the topic of inherited wealth – its blessings, curses, and dilemmas. As investment advisors, we are frequently asked how to help inheritors make career decisions or when to inform young people about their future wealth. We are happy to present here a resource for families with similar questions.

Part 1 – Introducing Barbara Blouin’s publications of the Inheritance Project

Not many books discuss the emotional journeys of inheritors, and few of those have been written from an insider’s perspective. That’s what makes Barbara Blouin’s numerous publications so unique and interesting. In 1992, together with two other inheritors, Mrs. Blouin founded The Inheritance Project. Its goal was to explore the emotional and social impact of inherited wealth, and to show heirs how to claim their personal power and use it to bring meaning to their lives and benefit others.

The Legacy of Inherited Wealth is a good starting point.  Here you’ll find a collection of frank and lively first-person interviews with inheritors. They discuss the challenges and opportunities that inherited wealth can bring.

Mrs. Blouin has published other works that cover specific aspects of inheriting wealth such as finding a meaningful career and passing wealth along to one’s own children. I had the pleasure of talking to Mrs. Blouin and exchanging many emails with her about this project. She graciously gave me a lot of feedback, and guided me in writing this piece featuring her work. Thank you!

Below you will find some highlights from a number of Inheritance Project publications that I found especially relevant. Given the depth and the volume of examples, advice, and life stories shared, it’s hard to give them justice in a brief article.

List of Inheritance Project Publications available at http://inheritance-project.com/

Including the Children

(Here I would expand the discussion to not just children, but to any inheritors who may receive a significant bequest at a young age.)

Emotional dimension

In Passing Wealth Along to our Children, authors Margaret Kiersted, Barbara Blouin & Katherine Gibson discuss the emotionally charged decisions of estate planning. We see how conventional planning focuses on tax and financial priorities, minimizing how parents feel about passing on their wealth. The experts quoted in the book remind us that we might be wrong thinking that we can talk about money in a factual, dispassionate way. It’s easy to overlook the emotional dimension of wealth transfer on both sides, those giving as well as those receiving.

Be positive when you talk about money

In Coming into Money – Preparing Your Children for an Inheritance, Mrs. Blouin writes: “One way to protect your children from misplaced guilt, embarrassment and shame is to teach them — if you feel comfortable doing it — that you are proud of your family heritage. Almost everyone wants to feel that they are part of a family culture and a family tradition. If you feel mostly positive about the wealth your father or great-grandfather created, you can teach your children about your family’s history — how the money was made and the good things that have been done with it.”

It’s not enough to appreciate the emotional dimension of passing wealth along; it helps to focus on the positive side of money – the good it can bring and the family history around it.

The issue of control

We further read in Passing Wealth Along: “Control, or the lack of it, is one of the central issues for many parents in creating their estate plans. On the one hand, they want to help their children by leaving them money. On the other hand, they fear that their largesse could be misused, the wealth could be squandered, and their children could become people of whom they would disapprove.”

Is there a happy middle ground, where we give them enough freedom, yet help them avoid making the biggest mistakes?

Baby steps, allowing for some mistakes

We further learn: “The way children are raised has great impact on how well they cope with their wealth. The more we discuss wealth and its implications with our children while they are growing up, the better they will be equipped to handle their inheritances. If we can afford to, distributing at least some of our wealth before our death gives children the opportunity to make some mistakes and develop some skills.”

Avoiding all mistakes is impossible. Having early, gradual, and open conversations with children may help immensely, but we might need to leave children room to make their own mistakes. These can be learning opportunities.

Work ethic – being a good role model

In Coming into Money – Preparing Your Children for an Inheritance, Mrs. Blouin writes: “Whether you give your children money earlier or later, and whether you give them more money or less, there are things you can do that will be helpful. Modeling a work ethic for your children is essential. […] But it isn’t necessary for you to spend forty or more hours a week earning money at an office in order to be a good role model. It may not even be necessary that you make money. Woody’s [one of the inheritors featured in the book] mother did volunteer work; what he admired was not whether she made money but that her work had intrinsic value. She demonstrated how a person of wealth can serve others.”

It’s quite a feat to be a role model, but given the long-term benefits it can bring, it might be worth the extra effort.

Rethinking the secrecy

In the same publication, we learn more about the need to inform the kids about the inheritance: “In the past, wills were often kept secret. The man of the house, who usually had full legal control of the family assets, did not discuss the terms of his estate, sometimes not even with his wife. Children who wanted to know the terms of their inheritances were seen as greedy and grasping, waiting to benefit from a parent’s death. By the same token, parents who kept their children in the dark were able to use the threat of disinheritance as a tool to manipulate their offspring.”

Again, the manner of giving is more important than the amount, and openness is generally beneficial.

Surprise inheritance may backfire

In Coming into Money – Preparing Your Children for an Inheritance, Mrs. Blouin writes: Responses to a sudden announcement vary widely — from paralysis to anger, from spending sprees to deciding on the spot to give away the entire inheritance. Others respond by leaving their money alone, not spending any of it, and just pretending it isn’t there.”

A large inheritance is a life-changing event, and can take considerable time to process. For that reason it’s often wiser to prepare inheritors with a more gradual revelation of their expectations.

No perfect plan

The authors remind us: “Even if parents plan their estate with the precision of a space launch, life remains unpredictable. There are so many variables involved that it is impossible to create a flawless estate plan.”

As investors, we can’t predict the future. As parents and grandparents, we can’t outguess all possible outcomes either. No plan can cover every eventuality, but it is essential to have a strategy to pass along wealth.

 Career Implications: Looking for purpose and autonomy, while facing high expectations and doubts

 Most young adults look for work that is both meaningful and satisfying. This can be harder to achieve with the prospect of a large inheritance in the future.

 A freedom we all crave, but a complex one

In Labors of Love Mrs. Blouin writes: “Not needing to work for money opens up vast possibilities, unbelievable freedom of choice. Doesn’t everyone, after all, crave that kind of freedom and all the other perks that come with money? What choices do people make when they have so many options from which to choose? Why do some find ways to live full, satisfying, and productive lives? And why do others drift aimlessly and joylessly, without taking hold of anything that sustains them? As an heir, I have been haunted by these questions for many years.”

So how can we lead a full, satisfying, and productive live, and take advantage of the variety of choices we have, instead of drifting aimlessly and joylessly? Perhaps there is no easy answer, but asking the question at least starts the conversation.

 Purpose is all there is

 In Inheritors and Work: the Search for Purpose Barbara Blouin quotes a young inheritor: “When you don’t need to work for survival, purpose is all there is. And when you’re twenty-one and you don’t have the necessity to get out there, it’s an enormous thing to struggle with at a young age. What do I need to do? I don’t need to do anything! I feel the money I inherited is a muting force—like right after a snowstorm, when everything is white and quiet and sort of neutralized. I feel like I’ve been subdued. Nothing stands out more than anything else.”

When earning money is a necessity, the true purpose becomes secondary. Without that financial pressure, the search for purpose becomes the main goal.

In search of autonomy, self-esteem, and identity

We read in the same publication: “The first job that pays a living wage is a rite of passage into autonomy. But when young adults start getting hefty incomes from parents or grandparents, they are likely to question whether or not they could stand on their own.” And further we hear: “Inheritors who have not yet taken the leap into their first job often feel ashamed and inadequate. And their sense of identity may be tenuous.”

We realize how fragile autonomy, self-esteem, even identity may be when young adults are overwhelmed with gracious gifts from the family.

Great expectations and great doubts

The author shares with us that: “Whether young adults have parents who are inheritors or entrepreneurs, they may inherit the considerable baggage of high expectations along with the gift of wealth. Whether such expectations are external or whether they become internalized, or both, the consequences are the same. Sometimes great expectations work well for inheritors. More often, though, heirs either fail to measure up, or they believe they haven’t measured up.”

The advantages of inherited wealth may be accompanied by outsized expectations for inheritors to achieve at the level of their parents or forebears. Failure to do so is naturally very painful.

Do what you love

Later in the book we read: “Some heirs use their unearned income as a springboard to do what they love: to join work with play, to be creative. Doing what you love has an infinite variety of possible shapes. It can mean wedding fulfilling work with money making, or it can mean devoting your time to painting or writing poetry or theater.”

In the most positive scenario, inherited wealth can liberate its recipients to do whatever they love.

Learning to be self-reliant

In Coming into Money – Preparing Your Children for an Inheritance, Mrs. Blouin quotes an inheritor, who shares the family wisdom: “Another family tenet is that money comes and money goes. So, although we were prosperous, we have been educated with the knowledge that war, revolution, depression, inflation and government policies can wipe out funds in the twinkling of an eye. Therefore, it is up to us to educate ourselves and our children in the understanding that we have to be self-reliant.”

Freeing a family from the sense of dependence on inherited wealth is not easy, but self-reliance can be achieved, and is immensely liberating.

Long journey and its turning points

In Labors of love Mrs. Blouin tell us: “As you read this book, I encourage you to pay close attention to the turning points in the lives of these people, for it is in the turning points that the heart of the matter lies. What are those turning points, and what changes did they bring about? Because my purpose is to encourage and inspire by example, my hope is that you will say to yourself, ” If these people could do what they have done, so can I.”

Mrs. Blouin’s publications help us to see that there are many who face the dilemmas of inheritance. Better yet, they inspire to see paths for ourselves, as others have done.

Inheritance can be a blessing

We read in Inheritors and Work: “For those who have found satisfying work they care about, an inheritance is truly a gift and a blessing. This is not to say that all the difficult aspects of being an heir can be neatly disposed of. These individuals still have plenty to contend with. One thing they all share, however, is a history of personal growth. They have committed themselves to the intense ‘inner work’ (3) that theologian Matthew Fox encourages. And the fruition of their inner work manifests in their ability to connect with some form of outer work that benefits not only them but also others. By so doing, their work—whatever it may be—connects them to others and to community. Thus they are able to go beyond their isolation and become whole human beings.”

Through personal growth, satisfying work, connecting with the community, we may realize that inheritance could be a gift, and a blessing allowing us to accomplish more than we could have imagined.

Conclusion

To sum up, there is no single way to prepare our children or descendants for inheriting wealth, but the emotions must be considered as much as the finances. Further, it is a good idea to gradually introduce the next generation to the responsibility, challenges and advantages that come with inheritance. When money is not an issue, career choices may prove to be a search for a true calling which helps earn our autonomy and self-esteem. And finally, many future inheritors will discover giving back as a fulfilling, rewarding part of their journey.

Bogumil Baranowski – January 1st, 2017

Reference:

  1. “We’re On The Verge Of The Greatest Transfer Of Wealth In The History Of The World,” Matma Badkar (Business Insider, June 12, 2014)
  2. “The United States is lagging behind other parts of the world when it comes to leaving inheritances for future generations,” (CNN Money, December 13, 2013)
  3. Matthew Fox, The Reinvention o f Work: A New Vision o f Livelihood in Our Time (SanFrancisco: HarperSanFrancisco, 1994

Available as a video podcast or audio podcast (iTunes and Podbean).

This presentation and its content are for informational and educational purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but not a representation, expressed or implied, as to its accuracy, completeness or correctness. No information available through this communication is intended or should be construed as any advice, recommendation or endorsement from us as to any legal, tax, investment or other matters, nor shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security, and has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient.