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7-Step High Net Worth Inheritance Planning Guide

Advice to High Net Worth Heirs: Don’t Be Part of This 90%

Are You Going to Receive a Large Inheritance? Here’s Your 7-Step Inheritance Wealth Management Planning Guide

Inheritance is coming.

Looming like a shadow over everything your family has spent years, decades, or perhaps multiple generations building, the day will come when the wall will fall, and your high net worth inheritance will suddenly rush upon you.

Sound a bit like Game of Thrones? The stakes aren’t quite the same as what happens when winter comes in that show, but the ‘threat’ is just as imminent.

How is inheritance a threat, you may ask?

It’s a threat because of how easily it can be lost and squandered. High net worth inheritance often catalyzes sudden changes in lifestyle and financial behavior.

One study found that 90% of inherited wealth has completely vanished by the third generation. That’s incredible. For example, the founder of the John Forsyth Shirt Co amassed a fortune through his business of about “$70 million in today’s dollars,” according to his grandson.

Where is it now, just two generations later? Gone. Squandered by “bad decisions, bad luck, and alcohol.”

You’re far from immune to this. This happens to 90% of high net worth families. And to be clear on our terms: If your upcoming inheritance will push your net worth into the multi-millions, then you are receiving a high net worth inheritance.

If you’re in line to inherit from high net worth or ultra high net worth parents, this warning is for you, and you have three ways to respond to it.

3 Responses to Inheriting Wealth

1) Do nothing, make no plans, and accomplish nothing

In this scenario, with the money you’ll one day inherit, it just sits there. Perhaps you add it to your current accounts and act as if nothing has changed. You don’t waste it, but you don’t do anything with it either. If you’ve already achieved high net worth status yourself without this inheritance, this isn’t the worst option you could choose, but it’s not the best either.

2) Do something, make no plans, and squander large portions of it

Here, you take the money, and you use it recklessly or irresponsibly. This is by far the most common behavior observed after receiving a high net worth inheritance, as you’ve already seen. And to be clear – often this happens because the heir simply hasn’t been shown how money works, or how to steward it so your life prospers. The solution here isn’t to vilify or ridicule. It’s to choose response #3 instead.

3) Do something – with smart planning – and maximize your use of it

Here, you’re using your inheritance for the greatest possible positive effect it can produce for you, the people and causes you care about.

The details of how you manage a high net worth inheritance depend greatly on when you receive it. Getting an inheritance in your 30s is very, very different from getting one in your 70s.

And receiving an inheritance does not have to radically change your life. But it has great power to make it better, if you defer any major decisions until you’ve put a plan in place.

7-Step High Net Worth Inheritance Planning Guide

You must set time aside, without emotion, to plan how you intend to use the wealth you’ll one day inherit. You’ll likely want to involve your spouse, and perhaps your siblings in this discussion.

Depending on your circumstances, you might want to begin this discussion while your parents are still alive. In fact, they might want to share a few insights and recommendations with you.

Here’s a seven step guide to planning how to activate and enhance your life with your high net worth inheritance.

1. List Out Your Biggest Goals, Dreams, and Desires

At this point, you’re not getting ultra-specific. You want to get an idea of what everyone at the table has been harboring in their hearts for many years, that they now see an opportunity to act on.

These could include general ideas like travel, starting a business, launching a foundation, giving to charity, investing in real estate, funding a movie production, developing a product idea.

You’ll get more specific about these in part 3. But whether it’s just you receiving this inheritance, or if several other siblings will also be at the table and part of this discussion, you need to know what you want.

This forms the foundation of your planning, and will guide the rest of the process as a foundational component.

2. Assemble Your Team of Expert Professionals

Bring on high net worth specialists who can help you work out the details of how you’ll use your inheritance. These experts include your estate planning lawyer (so you can pass some of this on to your heirs, and not fall into the 90% who fail at this), a tax attorney, a wealth manager, perhaps an accountant, and others depending on the details.

The key is, you want professionals who are familiar with high net worth scenarios.

That way, they will know what questions to ask. They’ll suggest ideas you wouldn’t have thought about. They’ll recognize warning signs you would have missed.

In short, they’ll protect you from yourself, and from other people who might try to prey upon your new burst of wealth.

Pillar Wealth Management works exclusively with high net worth households, and we have 60+ years combined experience working in this specialty. We have seen it all, and we know what you’ll be facing if you’re about to inherit seven, eight or nine figures.

See if we’re a good fit for your team of experts

3. Hash Out Your Spending Plans

There’s nothing wrong with spending some of your inheritance on things you enjoy. Here is where you get specific about what you’re going to spend it on, and about how much.

Maybe you’ve always wanted to attend the Olympics in a faraway land, and this inheritance enables you to spend a month in a foreign country enjoying the entirety of the Games.

Maybe you have a side business idea you’ve been wanting to try out, and you want to use some inheritance money as seed capital. Even if your idea doesn’t pan out, that doesn’t mean you shouldn’t use this opportunity to try.

Or, perhaps one of your kids is getting married soon, and you’ve always wanted to throw an extravagant wedding. Now’s your chance.

There are many worthwhile yet costly ways to spend parts of your inheritance. The reckless approach just starts spending, doing things you’ve always wanted to do, with no concern for the long term damage it does to your finances.

With smart financial planning, you can achieve some of these lifelong goals and dreams and still burnish your long term financial security at the same time. That’s the ideal approach to managing a high net worth inheritance:

Aim to strike a balance between things you’ve always wanted to do, and your long term financial health and prosperity.

4. Make Personal Investment Plans

The most essential outcome of every wealth management plan – inheritance or not – is long term financial health and security.

However much money you have at the time you receive a high net worth inheritance, you’ll now have quite a bit more. This gives you the opportunity to strengthen and solidify your investment planning.

This process requires substantial effort. It’s not just as simple as tossing the inheritance money into all your existing accounts. You must account for tax implications, for one. Where money gets put, and how and when it gets put there must be carefully worked out.

Your tax attorney and your wealth manager will show their greatest value at this point in the process.

The primary focus here will be on long term growth and optimized performance. What can you do with this money, and how much should you set aside for investment goals so you can stabilize your finances for the rest of your life?

Here again, you want a wealth manager in the room during these meetings who only works with high net worth households. You only get one shot at doing this right. Pillar has sat in on many of these meetings.

Find Out If Pillar is the Right Wealth Manager for Your Team

5. Make Provisional Plans for Your Heirs

Depending entirely on your life circumstances (such as age), planning to provide for your heirs could look very different.

The older you are, you may want to use this opportunity to make significant changes to your own estate plan. But that’s not your only option.

For instance, if you have kids (or grandkids), they might need help in ways you can act on immediately. They may be in private K-12 school. You can contribute to their 529 plans, which can now be used for K-12 as well as college. Or, you could just pay for their schooling directly.

You could also choose to fund their Health Savings Accounts to the max for a period of years to build up their medical nest egg.

You could also help them buy a home, or upgrade their existing one.

Depending on the size of your inheritance, many such options may now be on the table. If one of your life goals and dreams (listed out in part 1) is to ‘help your heirs’, here is where you’ll get specific about how you plan to do that.

6. Make Philanthropic Plans

This again falls into a general category of a life goal that you can now act on. It’s quite common for people who inherit wealth to want to give some of it away.

Take some time to explore your values and the causes that align with those. Find charities and nonprofits that fit with what you want to accomplish. Settle on amounts you want to give.

Or, if you want to get into philanthropy as a longer term part of your lifestyle, start your own foundation. Here’s a quick guide for how to start a charitable foundation.

7. Acknowledge Complications

Every family has ‘stuff.’ Some of it is negative, such as prior divorces, siblings or children who fell out of favor, and meddling relatives. Some of it is positive, like adopting children, or having one of your three children make it big in their business.

These sorts of complicating factors can make it harder to work through the details of how to allocate your inheritance. This is another reason why having a team of impartial professionals is critical to maximizing the final outcomes of your inheritance planning.

The Most Important Thing about High Net Worth Inheritance

Remember – 70% of high net worth family wealth is gone by the second generation, and 90% by the third.

Timely inheritance wealth management planning can save you (and your heirs) from a lifetime of heartache, regret, bitterness, and resentment.

Take the time to get the right people in the room. Talk about your goals. Make your plans. And enjoy the fruits of what your inheritance makes possible.

See if Pillar Has the Right Wealth Manager for Your Team of Experts

 

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