The Dangers of Large Inheritances

Click below to listen to Episode 232 – The Dangers of Large Inheritances

The Dangers of Large Inheritances

Learn about setting up an inheritance system that could stay in your family for 100+ years.

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If you are trying to figure out how to distribute your inheritance after your passing, then this is the episode for you! Bob and Shawn touch on key points on how a large inheritance can lead to a spending frenzy, a lack of understanding of how long it takes to build wealth, and more dangers when it is not distributed properly.

Instead, a large inheritance has various steps and safeguards that can be put in place in order to have a better success rate so that it might last for several generations. The goal should be to pass on not just the wealth, but the wisdom and good money management habits that allowed the wealth to be built in the first place.

HOSTED BY: Bob Barber, CWS®, CKA®
CO-HOST: Shawn Peters

Mentioned In This Episode

Christian Financial Advisors

Website

Bob Barber, CWS®, CKA®

Shawn Peters

Bible Verses In This Episode

PROVERBS 20:21

An inheritance claimed too soon will not be blessed at the end.

PROVERBS 17:16

Of what use is money in the hand of a fool since he has no intention of acquiring wisdom?

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EPISODE TRANSCRIPT

Bob (00:00):
Give out a portion of it, but not all of it so that it goes right back into it and it grows. And this is the power of setting up an inheritance the right way.

Shawn (00:21):
Welcome back to Christian Financial Perspectives. My name is Shawn Peters. This is Bob Barber, and today we’re going to be covering “The dangers of a large inheritance”, which when you say it out loud, it kind of almost seems weird. What do you mean? How is a large inheritance dangerous?

Bob (00:34):
That’s right. Yeah. But scripture does talk about it for sure.

Shawn (00:39):
Yes. Proverbs 20:21, “An inheritance claim too soon will not be blessed in the end.”

Bob (00:47):
There’s an old saying, “shirt sleeves to shirt sleeves in three generations.” What does that mean? Well, generation one makes wealth. They create wealth.

Shawn (01:02):
Generation one creates wealth.

Bob (01:04):
Okay. Generation two, they don’t use it all, but they use a lot of it. But the time the wealth gets from generation one to two into the third generation, the third generation squanderers it all. And that’s what we mean by shirt sleeves to shirt sleeves in three generations. And this has been going on for hundreds of years. And it even happened in my own family because my great grandfather created a lot of wealth, owned thousands of acres, a big rancher, and then it went to my grandfather. And then my dad was not very good with finances. I mean, I loved my dad. He was a great godly man, but he was terrible with finances and spent it all, and then it starts over with me again.

Shawn (01:56):
So you’ve seen this play out in many families and even in your own…

Bob (02:00):
in my own family. Right.

Shawn (02:02):
Exactly. Your parents and grandparents.

Bob (02:03):
You haven’t seen it play out, but your dad has done an incredibly good job.

Shawn (02:10):
I would definitely say my dad would have to be in generation one in this type.

Bob (02:14):
Yes. So he’s created and you’re the second generation, and then your children, you need to be very careful. Your dad needs to be very careful, just like I do, about how we pass off and give the inheritance to the following generations. And that’s what we’re going to be talking about today.

Shawn (02:34):
Okay. So what you’re saying though is that this scenario doesn’t have to play out.

Bob (02:40):
It doesn’t have to. And if you study successful families over the generations, you’ll find them. One right here in Texas is the King family. The King Ranch. It’s one of the largest ranches, the largest ranch.

Shawn (02:53):
Most people have probably heard of that, especially if anyone watching or listening, King Ranch edition with Ford.

Bob (02:59):
Yeah, the King Ranch edition Ford truck. Yeah.

Shawn (03:01):
And now they’ve got the King Ranch edition for just about all the models. You get the Explorer, you get the Expedition, the truck, everything.

Bob (03:08):
And you think about the Rockefellers too, and families like that pass generations down for wealth for multiple generations and it stayed is they understand the concept of what I call the golden goose. The goose is laying the golden eggs. The problem with inheritances is that when you just divide it up…

Shawn (03:32):
So once the second spouse passes away, you divide it up amongst all the heirs instead.

Bob (03:38):
And what you’ve done is you taken the goose and just chopped it up. Yeah. And when you think about compounding, we have talked about the rule of 72 and compounding. It takes just as long for $10,000 to go to $20,000 as it does for 2 million to go to 4 million or 4 million to 8 million. So what happens is, is when you start chopping the wealth up and you just start distributing it out…

Shawn (04:04):
You have smaller and smaller principal amounts that can actually earn.

Bob (04:08):
That’s exactly right. So what happens is that wealth creates more wealth, and especially if all you’re bringing off of the wealth is the interest, don’t take the principal off, let the principal stay there and even of the interest that you earn, give out a portion of it but not all of it so that it goes right back into it and grows. And this is the power of setting up an inheritance the right way. I came up with basically what I feel are around 10 to 11 dangers of a large inheritance.

Shawn (04:47):
So some things to look out for.

Bob (04:49):
Right.

Shawn (04:50):
Or avoid. Okay. Well, number one, it can cause a spending frenzy. Many inheritances are spent within just two to three years of receiving.

Bob (05:01):
We’ve seen this right ourselves, haven’t we? Right here in our firm.

Shawn (05:06):
We can’t name any specific family names, but we have seen where there’s a large inheritance come through or some sort of mineral rights or something like that that’s found. And then we see some of the family ends up buying extra houses and boats and cars and everything else you can think of. And then eventually, the money starts to dwindle.

Bob (05:27):
Because they didn’t realize the cost behind all that.

Shawn (05:30):
Exactly.

Bob (05:30):
And maintaining that.

Shawn (05:31):
But not only that, but you’re pulling so much out that well now you spent not just the interest, but you spent a significant portion of the principle. So now each year it’s earning even less. And so then people within two to three years, they basically don’t have anything left other than a whole bunch of stuff they bought that’s expensive to maintain. And then you have others that don’t change their lifestyle too much and two to three years later, they have more now than did when they started.

Bob (05:58):
We’re going to be careful about giving a full explanation of them. I just want you to hear them and really take them in. Otherwise, this will ended up being an hour long program. So the second one is a large inheritance can cause speculative behaviors. It can be investing in day trading in the markets, or it could be a risky business venture. I’ve seen this a lot too. We’re going to go start this business now with this inheritance.

Shawn (06:24):
Like go a restaurant. Those are always successful.

Bob (06:27):
What is they say about 90% of ’em fail after two or three years?

Shawn (06:30):
Something like that. I don’t know.

Bob (06:31):
It’s a really high percentage.

Shawn (06:32):
Yeah.

Bob (06:33):
I’m always scared. I would be scared. So scared to start a restaurant. It’s so much work involved, too. Oh my goodness.

Shawn (06:38):
Another one, heirs with large inheritances can become a target of fraud and abuse by others. It’s very similar to when people win the lotto and then people find out that they won the lottery, and then it’s all of a sudden there’s cousins and long loss friends and uncles and aunts, all kinds of people that you’ve never heard of that all have a sob story or all have this great business deal. And I mean other times, even just actual crime, like people just trying to steal it.

Bob (07:05):
Yeah, that’s right. It can also distort the psychological power of ownership because receiving that large inheritance can cause a sense of accomplishment that can be lost in that transfer. I didn’t earn this. I didn’t make this.

Shawn (07:19):
But then what happens is, is that that money, that wealth, gives someone this false sense of that accomplishment or ownership and it’s like, “Oh, I know what I’m doing. I am no