I often speak to local associations and service groups about estate planning. Oftentimes, the topic is about protecting the money people have worked so hard for. While proper planning can make things easier on your heirs after you’re gone, few people consider how effective planning can protect the inheritance you leave before you even leave it.
There are many ways your spouse, children, or grandchildren could end up losing what was so important for you to leave to them. I know you can’t imagine your loved ones blowing your hard-earned money (or maybe you can), but sometimes it happens in the blink of an eye. What are some of the risks you should protect an inheritance from?
5 Primary Risks to an Inheritance
There are five main reasons your heirs could see their inheritance go up in smoke. It’s important to be aware of these things and protect the inheritance. After you’re gone, you can’t do anything about these issues, but there are things you can do beforehand.
Let’s look at five common reasons people can end up with no money, even if they’ve inherited a bundle.
1. Lawsuits
We live in a litigious society. Imagine your spouse, devastated by your recent death, running a red light and causing an accident involving a school bus. In an instant, all that you worked so hard for could be given away by the courts to the injured parties leaving nothing to care for your family in your absence.
There can also be lawsuits from relatives who feel slighted or were left out of the will. This litigation can be expensive, and if they win, you’ll have to pay them out of your inheritance.
2. Divorce
An NFL owner was once asked by one of his players what the most dangerous thing to happen to them financially could be. His answer: Divorce. Many players, who marry their hometown sweetheart, can never imagine a divorce in their future.
Even if your son has married the sweetest girl in the world, there is no way to see what the future holds. Would you be okay giving half your hard-earned money to her if they end up getting divorced a few years after you pass away? It happens regularly when people don’t plan ahead.
3. Remarriage
If your spouse remarries after your death, would you mind if part of the money you left behind went to the new spouse? Or if even later it was left to the new spouse’s kids?
The new wife or husband could be someone who is just after money, or they could be a stand-up, class-act new person. Either way, without planning, there is a risk those assets will end up where you did not intend. Your children could even lose access to the money they would need for college.
4. Wild Spending
Lots of quick money means a happy life, right? Well, that’s not what the stats show. Quick money — winning the lottery, getting an inheritance, or a multi-million dollar NFL contract — can lead to wild spending, divorce, and bankruptcy.
If your children end up with large assets at a young age, they could quickly blow it like any upstart professional athlete. If someone isn’t prepared to manage the money, the money will manage them.
You’ve worked hard so your kids will be okay without you, but will they really be better off with a large sum of money that has no safeguards?
5. Bankruptcy
Sometimes one or more of your heirs may incur such extreme debt that the only possible relief will come through bankruptcy.
These debts could be caused by a number of factors, including:
- A failed business venture
- Health problems like addiction, mental illness, accidents or disease that cause temporary or permanent disability along with hefty medical bills
- An incident like as a car accident that results in a judgment
Bankruptcy doesn’t just happen to spendthrifts. It can happen to anyone, and it’s important to ensure that the inheritance you leave behind will never be at risk due to a financial mistake or health issue.
Nobody likes to think about these difficult issues, but with proper planning these assets can be safeguarded and your loved ones will be protected — even if you can’t be around to do it. We take the time to understand each family’s unique needs and challenges as we create effective estate plans. Give us a call at 217-726-9200 or make plans to attend an upcoming workshop on the basics of estate planning.