Call us: +65 6221-8633
Follow us on:  

Ask any wealthy person about his greatest fears when it comes to his wealth. Surprisingly, among his answers, a squandered inheritance will be one. Parents fear that their hard earned cash would be wasted away by their irresponsible children. What causes this fear? Is it wrong upbringing? Culture problems? Or just the lack of discipline?

The old adage testifies to the truth of wasted inheritance. “Wealth does not pass through three generations,” this adage means that as more and more wealth is accumulated, heirs become more and more spoiled. Children who have everything don’t really care about saving or being wise with money. Take a look at the Vanderbilt Clan, look at how the heirs irresponsibly wasted away their vast fortune.

Estate Planning Strategies To Keep Heirs From Wasting Their Inheritance

More and more persons see the importance of leaving a financial legacy. And all the more the need to protect the inheritance they leave behind to their kids. The solution? Estate planning. Careful and well-calculated estate planning that would prevent inheritance from being wasted away. How? By first learning what causes it. And lastly ways to avoid it. How? Read on to find out.

The Biggest Mistakes Wealth Founders Make

  • Giving the Money Outright

When parents give the inheritance outright to their kids. They basically gave the house keys to burglars. Children raised in luxury don’t have a sense of self-control or discipline. Unless one raised a child to be careful and good with money, giving an inheritance outright is the dumbest idea. It exposes the fortune built to these three wealth draining acts:

    • Excessive Spending
    • Laziness
    • Addiction
  • Leaving Inheritance Without Supervision

Another cause of an inheritance squandered is leaving it without supervision. Heirs who are not disciplined will waste their inheritance away because no one is scolding them. A deceased person can’t possibly come out of the grave and scream at his child to stop, right? And most cases of squandered wealth are due to these heirs making stupid financial decisions.

Cause of Wealth Depletion

  • Excessive Spending

Heirs who don’t know how to accumulate wealth will, of course, make stupid financial decisions. They use all the resources until they run out of cash. They buy expensive clothes, cars, houses. And party day and night because they believe they are so wealthy that they will never run out monies.

They invest their inheritance on objects that depreciate with time, like playthings that are worth nothing. And when their cash runs out, they pawn whatever possessions that have left. In the long run, they end up bankrupt and destitute.

  • Laziness

Heirs who don’t know how to work, will of course not work! They’ll depend on their inheritance and do number one, spend. They make irrational business decisions without thinking of the consequences. These actions only deplete their inheritance and not help it grow.

  • Drug Addiction & Alcohol Abuse

Beneficiaries with problems in drug addiction and alcohol abuse will spend all their inheritance on maintaining their addiction. Their minds are not sane, and they will use whatever resources they have to fuel their need. And before long they would have used up thousands and even millions of dollars just for their unquenchable desire.

The Solution To Squandered Wealth

TRUSTS

Trusts are the greatest defence a parent can set up to prevent their kids from wasting their hard earned money. Trusts are like impenetrable stone castles that block one’s heirs from laying siege on the wealth built. Here are the reasons why trusts are the perfect solution:

Trusts DO NOT Give Inheritance OUTRIGHT

That’s right. Heirs can’t lay hold on the cash left behind by their parents outright. Trusts give out the inheritance in allowances, according to the settlor’s instructions. And if the trust is discretionary, then the trustees can decide to increase the allowance set depending on the standard of living.

Trusts Come with Conditions

Trusts can be set out with conditions. These conditions mean that heirs will not get their inheritances without meeting these conditions. A good example would be:

“My child Rose will get $ 25,000 when she finishes her college education.”

This condition means that if the beneficiary Rose fails to attain a college education, then she will not get the $25,000.

Another excellent example of a condition would be an heir not getting money unless he or she has a stable job. Unless he graduates from a prestigious school. Or unless he gets married. Unless he is sober, meaning no addiction issues or alcohol problems.

The conditions set out by the trust will prevent heirs from turning their parent’s legacy into an inheritance spent recklessly. It will protect the inheritance against problematic traits that beneficiaries might have. At the same time, it promotes financial legacy and gives inheritance only to those who are deserving.

Trusts are Monitored

Trustees manage and administer the Trust, so that means that the inheritance left behind is monitored. The best type of trust to maximise this a discretionary trust. This type of trust gives the trustees power to determine if the beneficiary is deserving to get the inheritance or not. Like for example in the case of beneficiaries who are drug addicts, the trustees can have the heir checked if he is indeed sober before they release any inheritance to him.

Trustees also make sure that heirs are not squandering their parents’ monies. So, a wealth founder can be sure that his hard-earned fortune is well monitored. And that it does not become a misused inheritance.

Trusts Accumulate Wealth

Through the careful planning of the settlor, before he or she dies, he can be confident that his wealth earns cash. There are many vehicles that can help monies stored in a trust gain dividends and interest over time. This accumulation of wealth is made possible through legacy financial planning and a well drawn up estate plan. Great estate planning will ensure that a wasted inheritance never happens. It also secures a proper wealth distribution among the heirs.

Final Thoughts

Inheritance being recklessly spent by heirs will never become a problem if careful estate planning has been done. Through the elaborate use of different trust types, anyone will be able to protect the inheritance he or she has left behind. Great families of today are not made by chance or good luck. Their fortunes are earned through hard work, discipline and incredible estate planning. So, if one wants to prevent the inheritance they leave behind from being misused, then beginning the feat of creating an estate plan is the best prevention.

Estate planning is a broad topic, but the good thing is that there are books that can help newbies understand what it is all about. Books like “The Rockwills Guide to Succession and Trusts in Wealth Management” will be of great help to anyone who wants to learn estate planning. Click on the link below to get a copy! http://www.rockwills.com.sg/book_purchase.aspx