Here is a notion that you might not be comfortable with.   Today, more than ever, your children are including inheritances on their financial statements.

“But, how could that be??”, you ask… “I’ve never discussed my net worth with my kids.”  “How would they know what I have?”

Trust me, even if you never discussed your net worth with your kids, they have a pretty good sense of what you have.

What does this mean for you and your family?

Well for starters, it means that children who have banked their inheritance as an asset may be creating a lifestyle for themselves which is more focused on spending, and not saving.  These children may be living beyond their means, and treating their inheritances as their savings accounts.

O.k., but why should you care about that?  After all, the truth is that the kids will be receiving a sizable inheritance from you.  So, who cares?

The answer to this question is that inheritance is poison.  So now, you have a bunch of kids with their straws out all sipping out of the same cup of poison, thinking that this poison is their lifeline of support in the future.

Let’s just go gently and say that this is a recipe for disaster.

Why?  Because, a child who is banking on their inheritance will go to great lengths to protect their inheritance from any perceived threat from their other siblings.  Under these circumstances, each child will be watching the other with tremendous paranoia, and any move by a sibling which is perceived to be overreaching will be met with a swift and terrible response from the others.

For example, let’s say that a elderly and invalid parent has an extremely valuable jewelry and art collection worth close to a million dollars.  This parent has three kids, who each have their “eye” on certain treasures, and are all counting on receiving 1/3 of the valuables as an inheritance on their financial statement.  If one of the siblings starts to spend more and more time with the parent, the other siblings may get nervous. They may thinking that the visiting child is scoping out the valuables, or pocketing some of the treasures during each visit.  Panicked, the other kids decide to rent a warehouse to store the valuables to prevent them from being gifted or stolen by the other sibling. The two children tell their parent of their intentions, and the parent relays this report to the visiting sibling during one of the visits.

Well, that move is met with immediate panic by the visiting kid.  The visiting kid now believes that the other two children are trying to steal the property themselves, or at the very least deprive their parent of the pleasure of seeing the treasures in the parent’s final years/months.  The visiting kid calls the other two and demands that they desist from their plan.  Now, paranoia and anxiety have truly set in.  The other two kids are sure that all of this protesting being done by the visiting kid means that their suspicions are now confirmed.  Feeling that time is of the essence, the two kids make a midnight visit to the parent’s home and take all of the valuables to a storage facility, of which they only have the key.

Of course, they refuse to give their visiting sibling a copy of the key, because after all, that will just put the group in the same predicament that they started from.  So, instead, they give their visiting sibling every assurance that the items will be properly divided later.  However, trust is broken on all sides at this point, and so the visiting kid threatens immediate legal action against the other two siblings if the property is not returned. These threats cause everyone to go to their respective lawyers.  Everyone now is deeply entrenched and ready for battle.  After a nice big fight and lots of attorneys’ fees, a settlement agreement is finally reached by the kids.  However, with high legal bills, each of the children are forced to sell a good deal of the treasure to cover their costs.  After the dust settles, the kids only wind up with a few trinkets, with the majority of the inheritance being paid to  lawyers.

Now, this example is just about personal property.  Can you imagine how nasty the fights become over family business in which all of the siblings are employed (That subject will be left for an entirely different post(s)), or extensive real estate holdings, etc.  The truth is that the more the kids become tethered to family wealth, the more dependent they start to feel on that wealth to support them, and the more paranoid they become.

So, think… along with your professionals, on ways to avoid this dilemma. Take the time to discuss the matter with your kids.  Ask them if they are counting on your inheritance as a necessary part of their investment portfolio.   If they are doing so, then ask them what does that mean for them… or for you?  Does that mean that they would skimp out on spending your money to pay for you to live in a luxurious nursing home when the time comes, opting instead for a cheap medicare home that would be otherwise unacceptable to you?

Try to trouble shoot these issues with them before they become real life problems for you, and your children.

For example, to use our highlighted example here, make a plan for how you want your valuables distributed, and decide who will get what during your lifetime.  Don’t assume that because your cuff-links don’t have diamonds in them that they are worthless to your kids.  You would be amazed at which of your items your children view as sentimental, and which ones they would like to be sold or given away. Talk to your attorney about properly memorializing your wishes and intentions under appropriate State law.

On this same thought, try to take some pressure off of the kids.  For example, instead of making them wait for an inheritance, maybe think about doing some lifetime gifting, if it makes sense for you (after discussions with your professionals).  Money often runs through the fingers, so maybe (after appropriate professional consultations) think about setting them up with a business/investment that will provide income to them during both of your lifetimes, so they have that cushion to fall back on and don’t have to count every dollar that you spend from their inheritance.

The bottom line is to do what you can to get your children to take their straws out of the inheritance cup. Because, remember, in all events and under all circumstances – inheritance is poison.