Have you ever wondered:

"How will your children spend their inheritance?"

The thought has had to cross your mind before today.

In a minute or so we will get to the startling truth about what people do with their inheritance.

If you think hard, you really do have a good idea what your children would do, don't you?

After all, by watching your kids or your grand kids, you probably have a pretty good idea how they value money.

Are they like you, a frugal saver?

Or are they like your siblings, big spenders even when they don't have it?

If you are like me, you probably want your money to make their life easier in retirement. Especially since they most likely will NOT have a great retirement plan like you did.

I started this report after several conversations with friends of mine, all financial professionals. I asked them outright what they had planned and why?

I actually was not surprised at their candor with me. People like to talk about this subject, although usually with a negative undertone.

I was shocked however at how many of them took the simple shot gun approach to planning. In other words they just planned on leaving the money to their children and even though they know the money would not be spent wisely and they are making no other plans. When asked why, most replied it was too much trouble. This from financial professionals.


Those of them who had a plan, truly thought it out. In addition to planning in detail how and when the children would get the money, this group set up expensive trusts to make sure their wishes would be complied with. Why? Because, like the group that did nothing, this group also thought that their children would mis-manage the money. In effect, waste their parent's hard earned money. To this group, this was not acceptable.

That simple fact is that parents, for the most part, feel that their children will not handle their inheritance well. The real difference between families is whether the parent cared or not.

Next there was that small group who had no children. They were as conflicted as the rest. If they left it to siblings or nieces and nephews, they felt it would not be spent wisely too. The other dilemma for them was what would happen if they left it to a charity. Would the money be used wisely? Or is the fact that charities administrators change regularly mean that their lump sum donations value to the charity would depend on who was there to administer it that particular day!

Not a comforting thought. Another non-comforting thought about charities is that for a single day only, you're a hero, after that you're very forgettable. Is this how you see yourself being remembered?

Recently a friend of mine told me how his father-in-law would pull out a video tape of the ceremony for his million dollar gift to a college and make his children watch this tape every Thanksgiving. It seems that that is the only way he could get anyone to care or even remember about his gift. Of course, his children didn't care for the yearly movie or the gift!

Back to children and siblings: If there one thing that you can depend on, it's that each child of yours is as different as night and day.

It seems that in most families there is the golden child, who can do no wrong, and then there are the "other" children. The ones who, well let's just say, are wild cards.

With the golden child you could probably give them a million dollars and they would invest most of it for the future. With the "not so golden children" it's: "let's party".

So what do you do? You could just hand it out and however it gets spent, "Oh Well"! You could go the route of expensive trusts and try to manage it from the grave. Or you could do half and half, a lump sum for the golden boy and simple trust for the not so golden boy. Of course that reminds me of the Tommy and Dickey Smothers bit where Tommy say's "Mom always like you best!".

Let's take a look at the top ways inheritances are spent. But first the startling truth: Although it's hard to determine this exactly but more than 85% of those who inherit any money have nothing left within 5 years.


Here are some of the top ways they spend it:

1. Purchase a car. Since most inheritances are not "fortunes" it's easy to justify taking what mom and dad left and spending on that dream car. Perhaps it's that 1969 Corvette that your 42 year old child still covets from their youth. You know the one that they'll buy that needs a little work to make it nice again and of course it never will get that extra work. Or how about your 18 year old grandchild that wants that nifty little two seater that just happens to cost $45,000 and would look terrific on campus in front of the dorm, if they can still afford to go to college. Since most inheritances are between $10,000 and $50,000, cars are the number one way to spend that free money you left.

2. Vacations. Same as cars, a good trip to the Islands is a great way to toast the parents!

3. Bigger homes. For the bigger inheritance, got to have a bigger home. After all the 1800 square feet that Mom and Dad raised the family in isn't good enough for Sally and Johnny. Got to keep up with the Joneses. Just visit any high-end development in America today. You'll see a new swing set in back yards of those 5000 square foot homes occupied by 30 something's with their 2 brand new SUV's in the driveway next to the baby carriages! Ever wonder how someone so young can live so well?

4. College educations. Finally, some common sense. With college costs as high as they are, some smart parents will be putting Mom and Dads money to good use. (could this be the golden child?).

5. Start a business: Sounds like a good idea until you see how many businesses fail. Of course, if it's that lazy son-in-law who has not been too good at supporting your daughter, he may well talk your daughter into starting a business for him because the manager at the Ford plant just does not understand him.

So here we are back at the beginning again. How do you think your children will spend your money?

Can you say "they'll do just fine" or "they'll just throw it away". Do you care?

Do you need to make new plans for your money? Do you have any ideas what to do? Do you know the alternatives?

Should you sit down and sort through your personal situation with someone who can guide you through the alternatives?

Is this type of planning just too complicated and costly?

There are alternatives that don't cost you anything to set up and while you are alive you still have control of your money. In fact, I know of two annuity products that allow you to set up an account that will pay their inheritance out over a 10 to 25 year period and you don't need a fancy expensive lawyer to set it up or to administer it.

If you feel that you need some help, then call your financial advisor or your attorney. Their a great place to start.


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