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Don't Leave Money to Your Kids. It Won't Last.

By Rick Kahler

NEW YORK ( AdviceIQ) -- As inherited money passes from one generation to the next, it is treasured and nurtured, right? Not at all. Often it is frittered away.

"I've never seen money passed from one generation to another in a manner that actually benefited the recipient." When a psychologist said this to me several years ago, I was dumbfounded.

Many parents scrimp, save and sacrifice so they can "leave something to the kids," with the intention of doing them good. It's hard to accept that inheritances may actually do harm instead. Most of us have expectations about bequests that are far more optimistic.

I used to hold several beliefs about inheritances. One was that leaving money to your children is a loving thing to do. Another was that parents should always leave their money to their children. A third was that anyone who received an inheritance would invest it wisely, using only the earnings to improve their lives.

Today I know those precepts were not universal truths. I have more understanding of the problems involved in giving money away in a manner that is beneficial to the receiver. It isn't as easy as I once thought.

Many parents envision inheritances for their kids as "seed money" that the offspring will use for the health, education and welfare for many generations. Research shows that is rarely the case; instead, inherited wealth does not last long.

Missy Sullivan summarizes some of the research in Lost Inheritances, a Wall Street Journal story published online March 7. According to this article, 70% of those who get an inheritance of any size spend it all in their lifetimes. For the 30% with something left to pass on, 70% of their kids also blow everything they get. That means by the end of the third generation, only one-tenth of the money originally passed down is left.
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