Leaving an Intellectual Inheritance

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Most people who amass wealth do not do it so that their heirs can squander it. However, that is what happens in most cases. One way to help prevent this from happening to your wealth is to leave your family with an intellectual inheritance.

In "Preparing for Inheritance: How to Avoid Losing It All," Barron's points out that 70% of a family's wealth is lost in the second generation and 90% of the wealth is lost in the third generation after an initial inheritance.

What typically happens is that the first generation works hard to amass wealth and the second generation lives off the wealth instead of working hard to make more. The third generation continues where the second left off until nothing is left of the original fortune.

Of course, this is not true for all families.

Some wealthy families continue to amass wealth generation after generation. The article points out how this occurs: the families that continue to thrive leave an "intellectual inheritance" for heirs.

Consequently, they educate their heirs about the family's legacy and values. They have conversations with their heirs about how the wealth was generated and why it is so important that it be maintained through continued hard work.

Think about this when you are creating your own estate plan.

It is not enough to have an airtight estate plan drawn up by a professional. If you really want that estate plan to be a legacy for future generations of your family, then educate your heirs and also leave them an intellectual inheritance.

Reference: Barron's (Nov. 7, 2015) "Preparing for Inheritance: How to Avoid Losing It All"

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