Pros and Cons of Passing Along Generational Wealth

Last Will & Testament
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The first Americans born after World War II are not just passing the mantle to the next generation. They’re passing the greatest accumulation of riches ever handed down.

“The Great Wealth Transfer, as we’ve come to know it, involves an astronomical $68 trillion moving hands from the baby boomer generation to its inheritors,” said Tim Schmidt, founder of IRA Investing, which focuses on retirement investing and intergenerational wealth. “This movement of capital undeniably presents a twofold scenario: immense opportunity on one side but also profound challenges on the other.”

Also, a financial advisor who works with wealthy families offers the best ways to transfer wealth.

Unearned Money Can Be a Blessing or a Curse

The gift of wealth is the gift of options, opportunities and security. But those who never had to risk, sacrifice and struggle to earn it might not respect it, and they therefore abuse it, misuse it and eventually lose it.

“Passing on generational wealth is a double-edged sword, a dance between privilege and responsibility,” said James Allen, certified financial education instructor, certified public accountant and founder of “On one hand, it’s a golden ticket, a head start in a race where many are left panting at the starting line. It can fund education, seed businesses, and cushion life’s blows, fostering an environment for success that might otherwise be out of reach.

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I’m a Millionaire: Why I’m Not Passing Generational Wealth to My Kids

“But here’s the rub,” he added. “It can also breed complacency, a sense of entitlement that saps the drive to strive, to innovate and to conquer adversity. It can create a bubble that insulates heirs from the real world, stunting their growth and potential.

“And let’s not forget the family drama. Money has a way of bringing out the worst in people; and, when large sums are involved, it can tear families apart, creating divisions that last generations. So, is it a blessing or a curse? It’s both. It’s a tool — and, like any tool, its impact depends on how it’s used.”

Being Born Rich Doesn’t Guarantee Success, but It Sure Helps

Warren Buffett refers to the station in life into which a person is born as the “ovarian lottery.” In 2013, the Oracle of Omaha told a journalist, “The womb from which you emerge determines your fate to an enormous degree for most of the 7 billion people in the world.”

A 2018 Washington Post study found that, in terms of outcomes, it’s far better to be born with money than with talent. The study’s authors wrote, “Economists found genetic endowments are distributed almost equally among children in low-income and high-income families. Success is not.”

“Transferring wealth to future generations can afford them financial security and stability,” said Michael Callahan, founder of The Callahan Law Firm. “It enables heirs to meet their demands, pursue education, launch businesses or invest in other opportunities with sufficient funds.

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“The inheritance of fortune can give heirs a head start in life. It can provide access to superior education, healthcare and professional networks — thereby increasing the probability of success and prosperity.”

Those Who Inherit Wealth Have the Opportunity To Share It

According to the Cleveland Clinic, “Giving is good for your health.”

Altruism, charity and philanthropy can have real and calculable positive impacts on both physical and mental health, including lower blood pressure, reduced stress, enhanced mood and a longer lifespan. Philanthropy can improve your social life, position you as a community pillar and help you build a network of influential contacts.

The problem is most people simply don’t have enough money to give on a meaningful level — unless they’re born into money.

“The transfer of wealth can facilitate philanthropy and positive social impact,” Callahan said. “Beneficiaries may use their inheritance to support charitable causes, address societal problems or make a difference in their communities.”

When You’re Born on Third Base, You Lose the Incentive To Hit a Triple

Self-made people often cite early-life poverty as their chief motivator for working hard, saving money and persevering in the face of adversity. But when wealth is all you’ve ever known, you miss out on the lessons that come with earning it.

“Sometimes, inheriting substantial wealth can cause successors to lack motivation or develop a sense of entitlement,” Callahan said. “When individuals receive substantial financial resources without having to labor for them, they may be less motivated to pursue personal success or develop their own skills and abilities.

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“Some contend that inheritance can inhibit innovation, creativity and entrepreneurial spirit. Without the need to generate income or find alternative solutions, heirs may be less motivated to pursue their maximum potential and passions.”

Some Estate Plans Create Rifts Among Kids

When a family’s wealthy patriarch or matriarch dies and only their money is left, even siblings who were once tight-knit can descend into squabbling in the absence of the stabilizing force that their parents provided.

“Especially when it comes to unequal distribution or conflicting expectations, inheritances can produce tension and division within families,” Callahan said. “Relationships can be strained by disagreements over the management of inherited assets and by divergent perspectives on wealth.”

Leaving Money to the Unprepared Is the Same as Throwing It Away

Many successful people imagine leaving money to their kids, who then grow it and leave it to their kids, who then grow it some more — but the money can go as quickly as it came if the skills needed to maintain a fortune die with the person who built it.

“There’s an old adage that goes ‘shirtsleeves to shirtsleeves in three generations,'” said Julie Meissner, founder and CEO of Treehouse Wealth Advisors. “The implication is that the first generation earns the wealth, the second generation maintains it, and the third generation loses it. In reality, very few families succeed beyond a couple of generations.”

Wealth Is Only As Valuable as the Knowledge Needed To Maintain It

In Meissner’s experience, the main problem with traditional legacy planning is that it focuses on the givers of wealth rather than the receivers.

“Teaching heirs about investing and being a steward of wealth, as well as developing an infrastructure around sustaining that legacy, can help keep families unified and ensure each generation continues to build upon the legacy that the generation previous leaves,” she said. “One of the myths about generational wealth is that wealthy families discuss money and finances and parents pass their knowledge to their children seamlessly.

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“However, whether it’s because parents don’t want children to feel that they don’t have to work or the general cultural norm that speaking about money is ‘rude,’ even wealthy families often refrain from discussing family finances. While it’s understandable that family finances are often an unpopular topic of discussion, it’s impossible to prepare for the future without starting with the basics. Without a foundation in financial literacy, a sudden or not-so-sudden inheritance can be derailing, much like winning the lottery can be.”

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