Coming into wealth suddenly – such as through inheritance or a windfall liquidity event of a family business – can carry serious risks.
The rapid change in financial circumstance can lead to poor decision-making, a loss of perspective, and social isolation. It can lead to a dysfunctional relationship with money/wealth. In the case of inheritance, there can be mixed or conflicting emotions of loss and gain.
It can be like winning the lottery, and research shows that most people who do so end up losing their money in a relatively short time.
But unlike winning the lottery, families are able to prepare themselves for future changes to their financial circumstance. I would argue that it is incumbent on parents to prepare their children to be healthy custodians of family wealth, rather than hide it from them for fear of spoiling them.
Consider This: Are your children ready for the wealth they will inherit? What have you done to prepare them? If most of your family wealth is tied up in an operating asset, do you have a sense of what it is actually worth?
Original articles: https://www.kiplinger.com/article/retirement/T064-C032-S014-five-common-pitfalls-of-sudden-wealth.htm, https://www.ft.com/content/3122b790-70b3-11e9-bf5c-6eeb837566c5l
Reposted with permission
Actionable Generational Wealth Succession
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