The Problem with Inherited Wealth

james_r_waters_cfp.pngOne estimate is that more than 85% of those who inherit any money have nothing left within five years. And a study by Oppenheimer Funds found that 40% of individuals who received an inheritance of $50,000 or more had decided what to do with it in less than one week.

Our experience validates these studies. Over the years due to client death, divorce and other reasons, we sometimes wind up managing accounts for clients’ children and other heirs. It is not unusual for these accounts to be used up shortly after the beneficiary receives control of the account.

For example, we recently had a divorced client’s 27 year old daughter call us to close an IRA of which she recently obtained control. She explained that she just got married, and they wanted to consolidate their accounts. We advised her that she would have to pay taxes and penalties and she would be wise to preserve the funds for her long-term financial security. Our recommendation fell on deaf ears.

Financially Responsible Children and Well-Crafted Wills May Not be Enough

Despite good intentions, children who inherit large amounts of money sometimes make poor decisions and irreversible mistakes. They don’t have the necessary knowledge, and they don’t know who to turn to for sound advice. As you know, conflicts of interest are prevalent in the financial services industry.

One Extra Step with BIG Impact

In addition to well-planned wills, we recommend you write a letter to your children and other heirs stating important money lessons you have learned while you were building your estate and include it with your estate planning documents. Suggestions about saving and spending money, investing, and charitable giving may prove invaluable to your children. You may want to include specifics of who you suggest they contact for guidance.

If you are not inclined to write such a letter we have developed language that can be used in your wills, codicils to your wills, or trusts. In essence it will be our responsibility to advise your children through the complex and ever-changing world of personal financial management. You can appoint PartnersInWealth as the investment advisor for the trustee created in your trusts. The language also allows you to make the suggestion that your beneficiaries use PartnersInWealth for investment or personal financial advice.

The Power of the Written Word

Don’t underestimate the positive influence written words of guidance from you can have on your children. In the example above I am confident our recommendations would have at least been strongly considered if the parents had made a positive recommendation of us to their daughter. It’s a shame she didn’t at least consider our recommendation. The compound interest over the next 35 years on the money in the IRA would have provided her with substantial financial peace of mind.

If you would like assistance crafting a letter to your beneficiaries, or a copy of the language we have developed for estate planning documents, please contact me at 713-964-4028 or


3400 Bissonnet, Suite 145
Houston, TX 77005-2153
713.964.4028 Phone
713.963.2977 Fax