The inheritance problem

06 Jun 2015

By Shadforth Financial Group

At some stage during our lives almost all of us will receive an inheritance of some sort. For the lucky ones it will be substantial and life changing. For others it may be a small item of sentimental value.

However one aspect that I could never work out when I was working as a lawyer dealing with estates was why each generation was not successively wealthier than the previous one?

If you think about it, each family should be able to retain and grow their wealth from one generation to the next and this is really what many of the great Australian family dynasties have been able to achieve such as the Smorgans', Packers' and Murdochs'.

However for most people, the complexities of life tend to interfere with this process and it is unusual for one generation to build on the assets from the previous generation. Why is this the case?

Having worked in both the distribution side (administering estates) and the creation side (financial planning) from my experience the issues are these:

  1. Many sell appreciating assets (property and shares) and replace them with depreciating assets (cars, holidays and boats).
  2. Divorce now occurs in 40% of marriages so when you split assets you lose a substantial portion of your joint marital wealth.
  3. The cost of living now appears to be significantly higher than in previous generations. The historical trend of having one parent working, two children at a private school and a family beach house is as uncommon as seeing a dinosaur walking down the street!

So what should you do when you receive an inheritance? For many people it can be an overwhelming experience and the temptation is to buy on impulse not on need. My advice would be to:

  1. Go on a holiday – although in most cases this shouldn't be in the first class around the world for six-months variety, rather something modest but enjoyable to give you time to think and to provide a level of reward.
  2. Spend and enjoy 10%
  3. Keep the remainder invested whilst you carefully consider your options.

The life we lead is a reflection of the choices we make. With any fork in the road decision in life whether it be marriage, your first house or changing jobs, you need to get it right as the consequences can be far reaching. Tread carefully and good luck!

If you have any questions please don't hesitate to contact the Shadforth Financial Group.

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