I was recently reading the Wall Street Journey and noticed an interesting statistic….70% of inherited wealth is lost by the second generation and 90% by the third.
So it got me thinking why was it such a high number?
- Was it poor estate planning?
- Does the next generation not have the necessary skills to manage the funds?
- or is it just bad luck?
With around 45% Australians not having a valid Will in place, this probably does not help the first point and is possibly one of the contributors to this statistic.
Working with clients all round Australia, I often see the importance of a well crafted Will by a competent solicitor. Like a lot of occupations, not all practitioners are what I would call “competent”, and we can see the impact of a poorly crafted Will or, worse still, no Will in place at all!
When we look at the the second point, we only have to look no further than the Lotto winners. On average around 65% of lottery winners are bankrupt within 15 years time globally.
So with such a big head start why does this happen? The main premies here is that as your wealth grows over time, your experience and understanding with money also grows. When one suddenly receives a large inheritance, sometimes they may not have the necessary skill set to manage such a large estate, or develop a robust strategy on how to handle this capital with experienced advisors.
Like the Lotto winners too, they may feel the temptation to fill in the missing gaps in their picture of the new life thanks to this new found wealth. Society often thinks that if you win the Lotto then you are expected to have a large house and then you need to have the expensive car to sit in the drive way, and the expensive lifestyle etc etc. A lot of these things can be wealth detractors rather than wealth builders.
In reality, you don’t know what might happen tomorrow – let alone what will happen after you have passed, however there are somethings which you can control like ensuring that your estate planning and assets are best placed to handle the transition to the next generation.
If you do receive an inheritance, we also believe it is important to seek professional guidance, to ensure a robust strategy is constructed so that you can be set up to win long term.
Over the years we have seen some wonderful success stories working with clients in this area which has resulted in building wealth for generations to come.
Like any great financial planning idea, it is important to seek professional guidance from a suitable qualified financial planner. We would of course always recommend AJ Financial Planning.