How can leaving money to someone not be helpful? Research shows that receiving a lot of money can certainly have harmful consequences. According to a MarketWatch article by Elizabeth O’Brien published March 3, 2015, one study found that one-third of people who received an inheritance had negative savings within two years of the event. “The vast majority of people blew through it quickly,” said Jay Zagorsky, an economist and research scientist at The Ohio State University in Columbus, Ohio, and author of the study, which was based on survey data from the Federal Reserve and a National Longitudinal Survey funded by the Bureau of Labor Statistics. According to Betterment Resource Center, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors.
Of course, a substantial minority of heirs don’t mishandle their inheritances. But it’s worthwhile, before you leave money or property to someone, to explore exactly what you intend the gift to accomplish. Wanting to be “helpful” is not enough. It’s also important to consider possible negative consequences of a gift.
- Will it actually cost the recipient time or money? For example, leaving the family home, vacation property, land, or ranch to someone can often cost them money they may not have in maintenance or taxes. The option of selling the inheritance may be complicated by an emotional burden of guilt and expectations.
- Will it result in causing difficult emotional issues between siblings?
- Will maintaining the inheritance cause distress? While managing a large portfolio might seem easy to you, it may be totally overwhelming to your heir.
- Will it encourage bad financial behavior? If a beneficiary hasn’t developed healthy financial behaviors, a significant inheritance may actually create new financial woes rather than solving existing ones.
- Especially if you have a difficult relationship with a family member, might an inheritance create guilt or anger? An inheritance viewed as “blood money” can sit unused or be squandered in an attempt to avoid the emotional pain that comes with it.
One way to help ensure your bequests are helpful is to explore your own intentions. Do you want to leave enough money for the beneficiary to become financially independent? Would you like your bequest used in a specific way, such as to pay off debt or fund education? Do you care if they use the money to fund issues or organizations of which you don’t approve? Perhaps you may not really care how they spend the money. None of these intentions are bad or good; the point is to be really clear on what you intend.
A second way to provide for thoughtful, conscious inheritances is to communicate with the intended recipients. Ask directly whether someone would want a bequest—for example, a valuable collection or a vacation home. Discuss options and possibilities rather than assuming what heirs might want or what they might do with an inheritance.
Certainly, leaving a loved one an inheritance can be exceedingly helpful in some instances and exceedingly destructive in others. No two situations are the same. If you want to increase the chances that your bequests will be helpful, the key is to first explore and improve your own relationship with money. My experience is that most people have a difficult relationship with money—whether they have a little or a lot. Sorting out that relationship can help ensure that what you leave to heirs will be a blessing rather than a burden.