The Danger of Inheritance
Inheritance, or even the expectation of inheritance, can be significantly harmful to the next generation. Think twice before passing it on.
While at “Think Week” in early February, a group of us were talking about inheritance.
We all had stories. Stories of those we knew that were ruined by inheritance. Stories of families torn apart by inheritance. Stories of expected inheritance that never came through. Egads. There were no positive stories!
So it got me thinking about the concept of inheritance. I know this is something my wife and I have discussed a bit, and we’ll admit, it’s been a relatively slow, multi-year process for us to become aligned on the topic.
And here is my take on inheritance, and its kissing cousin, passing a business down to the next generation: in most situations, it’s harmful.
Wait. What? How could gifting the next generation be harmful? That doesn’t make sense at all!
There are two reasons, each contingent on when the inheritance transfers:
It allows the inheritor to skip some steps required to become responsible stewards.
The anticipation of it, even subconsciously, erodes internal drive.
I am fully aware that my thoughts on this may come across as highly arrogant. Who am I, after all, to comment on how other’s give away their assets?
I fully admit I am no one. Just a guy with an opinion and many thoughts on the world around me.
So let’s dive in.
Reason Number One: Skipping the Steps
You know the old adage about cheating, right? It “robs the individual of the chance to learn.” You’ve heard that one, right?
Similarly, if the inheritance comes through when an individual is young (let’s say, less than 25), it robs the individual of the chance to learn how to navigate life with scarce resources.
I can still remember our first married Christmas. We’d just spent every dollar to our name on a starter home. I mean every. last. one. So much so that we didn’t have enough left to buy a Christmas tree. And while a Christmas sans decor is undoubtedly not trial by fire, my wife and I remember that story every Christmas and are thankful for how it changed our perspective on such things.
Take this small lesson, multiply it by a hundred, and that’s what an early inheritor misses out on.
Reason Number Two: The Expectation Neuters Drive
And if the inheritance comes through later than 25? From those I’ve known with expectations of a substantial inheritance, it’s highly demotivating.
Either consciously or subconsciously, each major life decision is considered in tandem with “when the money is coming through.” That new job opportunity, moving to a different city, buying a home, buying a second home, buying toys, etc., all are encumbered by the future expectations of a windfall.
Think about it: are you really going to grind if you know you don’t have to grind?
So, is all inheritance terrible? No. But if we’re playing the odds, I would argue that making it very clear to your children that no inheritance is coming through would be in their best interest. (Even if you plan on “changing your mind” right before you move on from this world…)
Books of Note: If there’s a niche that brings me the most joy, it’s small business finance books. I know, that might be the first time that sentence has been written in the history of the world. Alas, I’m a Greg Crabtree fanboy, and when I saw his sequel to Simple Numbers called Simple Numbers 2.0, and when I realized it was published TWO YEARS AGO, I was perplexed how I missed it. So I bought it and read it in a week, and it’s terrific. Its key topics are how to financially plan for scaling your business and how to use labor (including management labor) efficiency to drive your net profit. So for you nerds out there, give it a try!
If this post brought you value, I’d be honored if you’d subscribe to my newsletter. I’d also love a follow over on Twitter and Linkedin, as I post things there that are either too brief for the newsletter or are just entertaining things I come up with over a responsibly-sized serving of Blanton’s.
Amen, Brother!