Financial Planning Dentist

For those that are thinking about passing wealth on, they must think about how they want that wealth to be spent. For the people that are inheriting wealth, you may have other ideas in mind.  Both people have their own goals and understanding them prior to the actual event happening is important to plan for.

By Peter Locke, CFP®

In our podcasts and our articles, we speak at length about the three Ps.  And no, we’re not referring to the PPP loans. We’re talking about defining the People that help you, the Process to get you to your goals, and Policies you implement to hold you accountable along the way. Luckily, with everything we do at InSight, we still hold true to our three Ps. 

  1. People – an heir should surround themselves with people that can help them manage this scenario. By having a professional advisor or consultant, an heir can ensure that they act responsibly with that money in order to make the best decisions possible.
  2. Process – When an heir receives money, what happens next.  What are your immediate actionable steps you will take when you receive a lump sum of money or assets. Implement the right procedures prior to the inheritance so you make good decisions.
  3. Policy – heirs need to hold themselves accountable. Defining what that looks like can mean different things to different people but overall how will you make sure you do what you said you would do when this happens.  By surrounding yourself with the right people and processes you’ve taken the first two steps now it’s time to implement and monitor. 

By maintaining your focus on the three Ps, you can stay in line with your values and long term goals instead of getting distracted with what you could buy or do with the inheritance. There is a reason why the majority of people that win the lottery or make a lot of money in sports early run out of money quickly and have nothing to show for it. You may think it won’t happen to you but those are famous last words. With these three Ps, your likelihood of running into problems goes down drastically.  

sudden wealth

The biggest fear parents should have is how unstructured wealth transfers can have damaging effects on heirs and this is due to poor communication and trust. Parents should be preparing heirs about their relationship with money and what it means to them to educate them about best practices and things to stay away from. To teach heirs from an early age about your beliefs about money and good financial practices you can instill generational knowledge to pass down. This is a great time to bring on a third party professional to educate you and your family about how to have these conversations even when you think maturity is an issue. Waiting until you’re (the donor) older leads to quicker conversations instead of good healthy conversations that last over a long time that become part of our children’s subconscious thoughts which leads to better financial decisions. At InSight, we take teaching you how to talk to your children at an early age very seriously. These early and frequent conversations lead to our clients having the confidence to talk to their children about good money habits so that when they’re older they can rest in peace knowing their heirs have a strong foundation to lean on when they inevitably inherit your wealth. 

If you’re an heir and you have a lot of debt and little savings, paying off your debt may seem like a good idea but academically speaking might not be your best option for two reasons. One, it may give you a false sense of accomplishment that you paid off your debt by living within your means and staying disciplined.  Two, if your interest on your debt is very low then keeping your debt and making minimum payments may be a better long term option. Also, buying that new car or set of golf clubs because they’re really nice won’t give you true happiness. It instead may make you more unhappy because it doesn’t represent your values, it represents what you think other people care about. I have seen first hand how money affects your ability to make rational decisions, especially a sudden increase in wealth. Although the immediate dopamine hit you’ll get from a quick material purchase will be great, you’ll soon realize that you’re now in possession of an erosive debt instead of an accretive debt and your dopamine high will fade away as you pour money into trying to find the next thing.

At Insight, we’re your people, we help design the processes for your plan and your heirs plan, and we create the policies to keep you moving in the right direction. For example, parents may be concerned with the negative effects an inheritance could have on their children’s drive and ambition to get ahead, desire for material things, relationship with money, relationships with friends and partners, or just spending beyond their means. With our InSight-full® plan, you and your family get the type of help that you need to make sure your money is used the way you want it to and is protected as much as possible.  

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