If you are considering estate planning, one of the important aspects of the future that is probably on your mind is how to make sure your children do not squander what you are leaving them. At the Law Office of David Knecht, we have extensive experience in estate planning and can help you think through many of the important issues, and especially a plan to help your heirs utilize their inheritance effectively.
Business Insider highlighted a few of the worst things that can be done with an inheritance, and this article will summarize a few of those topics to help you begin to strategize the best estate plan for your family. See https://www.businessinsider.com/personal-finance/worst-things-inheritance-financial-planner-2021-1.
Sitting on the money—often better to invest the money.
There are a few risks of sitting on the money: inflation, opportunity cost, and the temptation to spend. A quote attributed to Warren Buffett is “The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worthless over time. But good businesses are going to become worth more over time.” See Warren Buffet quotes at https://www.insightssuccess.com/a-compilation-of-warren-buffett-quotes-that-will-add-perspective-to-your-investorlife/?gclid=Cj0KCQjwqKuKBhCxARIsACf4XuH2NAAwThinvlMnBvwSJIYXWAcNoskp5xpFzFZjtQWMq7SrlSmTRfkaAnu5EALw_wcB
Cash is an excellent asset for heirs to receive in an inheritance because it is so flexible, so it is not a negative in an estate plan. However, you may consider providing your children with instructions, education or just simply helpful advice on how to invest after you are gone so that they can make the most of what you are leaving them.
- Holding onto an inherited property that the heirs can’t afford – often better to sell or rent.
If an heir inherits a property, they may not want to sell or rent it for sentimental reasons. For some, the desire to keep it “as is” can prevent the best financial utilization of the property. There can be maintenance costs, taxes, and other expenses that the heirs may not have the funds readily available to cover. One strategy for estate planning is to anticipate in advance how the property will be used and maintained and to leave sufficient cash to cover the potential expenses the heirs may face in keeping the property. This is just one plan, but there are many other choices here as well to make the transition smooth and effective.
- Putting all of your money in one place – often better to diversify.
Your heirs may not be as experienced in money management as you are and one common mistake with inherited assets is to put the money all in one place. Many financial planners recommend diversification rather than putting all your eggs in one basket, and this holds true for inherited assets as well as assets that are obtained other ways. The idea behind diversification is that a variety of investments will yield a higher return and investors may face a lower risk by investing in different vehicles. See https://www.investopedia.com/articles/03/072303.asp.
Consult with the Law Office of David Knecht
At the Law Office of David Knecht, at 707-451-4502, we have extensive experience in estate planning in California. We can help you create a plan that is right for you and can help make the transition smooth for your heirs. Contact us today!
