Money To Burn

Then I hated all my labor in which I had toiled under the sun,

because I must leave it to the man who will come after me.

And who knows whether he will be wise or a fool?

Yet he will rule over all my labor

Ecclesiastes 2:18-19

Not too long ago someone asked me to tell them about some of the things I’ve seen heirs do with their inheritance. In very general terms, I described what I’ve seen heirs do over and over again. The person I was visiting with said “Wow! Have you ever see someone do anything smart with their inheritance?”. Immediately, almost reflexively, I said “Rarely. In fact, it’s so rare that I would really have to stop and think about it.”.

Research consistently shows that most heirs will spend all of their inheritance in very short order. My experience says that the research is accurate. Fellow advisors say that heirs do the same thing at their firms. I once read a research report that said only 2.5% of families will have wealth transfer intact between 4 generations. (I wish I could remember the name of the report, because I would love to link it here.) What that means is only 2 ½ families out of every 100 will successfully pass wealth from parent to child to grandchild to greatgrandchild intact.

Put another way, the Centers for Disease Control (CDC) says that 2,473,018 Americans die each year. Of those families, 2,411,193 will spend their entire inheritance before it reaches greatgrandchildren. In my personal opinion, this loss of wealth through the generations is one of the primary reasons families are not able to amass wealth, while the retention of inherited money is one of the primary factors other families become very wealthy.

In my experience, few heirs will complete financial planning and follow the advice of seasoned professionals. The money is burning a hole in their pocket and they don’t want us to produce a fire extinguisher.

So what are some of the common things I see heirs do with their inheritance?


Squandered On Uncontrollable Spending

This is the most frequent thing I see happen; heirs frivolously spend and spend and spend and spend, until there is nothing left. Unfortunately, there is little to no value in the goods/services they purchased with the inheritance.

There are 2 general ways they go about doing this;

  1. Nickel & Dime – These heirs rarely, if ever, spend large sums. Instead, they spend small, unplanned amounts on a regular basis; oftentimes in increments of $1,000 or less. Done twice a month, these people will spend $104,000 of their inheritance in 1 year, $208,000 in 2 years, $312,000 in 3 years, and so forth. They tend to stretch their inheritance over a longer term than most, but they spend it all nonetheless.
  2. Lavish Lifestyle – These are the big spenders and I’ve watched them burn through inheritances faster than anyone else. They take large withdrawals to purchase goods & services they would never be able to afford otherwise. There are 4 main places they like to spend; automobiles, clothing, travel, & swimming pools. 2+ vehicles, each costing $60,000 or more, are usually the first purchase. That is quickly followed by expensive, designer clothing, accessories, & jewelry. Up next is often a vacation, first class all the way to a luxury resort at some exotic destination. Eventually they get around to the swimming pool; they all seem to want one. The wish list is much bigger than the inheritance, I promise you.


What is the most egregious spending I’ve ever seen? First Place goes to the siblings I watched spend an $18 million inheritance in less than 24 months. You can’t even begin to imagine the things they bought and the things they did until there was nothing remaining of their inheritance.

Rot From Disuse

This usually occurs with real estate, automobiles, recreational vehicles, boats, etc …

The heirs have an unfathomable emotional attachment to some physical asset they’ve inherited. They don’t need the asset and have no real intention of ever doing anything with the asset, so it sits and it rots. It rots until it has little to no value remaining.

The other frequent way this happens is that the heir insist on owning an asset they cannot afford to maintain. Unmaintained real estate quickly crumbles. Unmaintained boats sink. Unmaintained airplanes fall out of the sky. You get the idea.

What is the worst such instance I’ve seen? It would have to be airplanes. Flying is a very expensive hobby that few can afford. I’ve seen countless airplanes, worth quite a bit of money at death, go unmaintained and become virtually worthless.


Inadvertent Tax Bills

Inheritances are lost, in whole and in part, to inadvertent tax bills. I don’t mean federal & state estate taxes, though that does happen. What I’m referring to are much more sneaky taxes.

It usually involves real estate, though it can be almost any asset. What happens is the family completes a major gift from parents to children without consulting an advisor. Most often, mom & dad give their children equal ownership of their house, for $1, while retaining a life estate for themselves. Everyone in the family thinks they are so smart, as though they are the first & only family to ever consider doing this.

Mom & dad die many years later. The house has gone up in value and the kids are ready to sale. They collect a large sale price … on an asset that cost them $1. The children now have to pay federal & state taxes on the profit; Sale Price – $1 = Profit. The children just lost a huge percentage of their inheritance. If they had inherited the house instead, cost basis would’ve been the value at the time of mom & dads death. There would’ve been little to no taxes on the sale and the children would’ve kept close to 100% of the profit.

Similar situations occur when parents gift stock, collections, and other assets. Each situation is a little different, but the end result is the same.

What is the worst case I’ve seen? The $1 real estate transaction … on a farm or ranch. Farms and ranches can easily be worth millions of dollars.


Lost Assets

This one is also common. The heirs are usually meticulous in settling the estate. They dotted all their i’s crossed all their t’s and didn’t cut any corners. Even so, they had no idea where mom & dad kept all of their assets. Because they didn’t know, the asset was not inventoried or distributed.

Hidden cash is often lost. You would be surprised at how many people keep large sums of cash hidden in their homes, but if the heirs don’t know about it, the hidden cash is sold right along with the property.

Stock certificates are escheated to the state. People come to me with stock certificates they’ve discovered, years after an estate was closed. In order to be processed, the estate must be reopened, which means hiring an attorney. Estate tax returns must be refiled, which means hiring a CPA. I’m not working for free either. It can cost roughly $10,000 to reopen an estate to process 1 stock certificate. If that certificate is not worth more than $10,000, it will be escheated to the state.

There are 2 unbelievable cases I’ve seen here. First, someone buried cash in coffee cans all over their multi-acre tract of land, to the tune of several hundred thousand dollars. They refused to tell anyone exactly where the cans were buried. The heirs cannot sale the property (which is also worth several hundred thousand dollars), because they are busy trying to find all of the buried coffee cans. Who knows if they’ll ever feel comfortable enough to sale the property. Second, a house and all of its contents went up for auction. On the day of auction, buyers began finding cash stuffed in magazines, books, shoe boxes, and dresser drawers. It was everywhere. The auction was postponed. Eventually, the heir found $600,000 cash hidden in the home … the home he was going to auction off a few weeks earlier.


Unknown Value

Some people own items of extraordinary value, but the value is known only to collectors. Heirs often inherit such items and without knowing the value, throw out the items, sale the items at yard sales, and so forth. These items can be common collectibles, such as coins or stamps, but they can also be unusual items, such as antique fly rods, figurines, and other niche items.

The biggest faux pas I’ve ever seen? Some siblings inherited firearms from their father. The siblings weren’t hunters and didn’t shoot, so they knew nothing about firearms. They leaned the firearms against the wall of a locked shed and there they sat for years. The firearms were original “Old West” firearms in extraordinary working condition. One of the rifles was also extremely rare. All of the firearms were 100+ years old. The collection was worth a very large sum of money. By the time they knew what they had on their hands, the firearms were a rusted out, nonworking mess worth very little money.


Inadvertently Disinherited

This is one of the most common ways an inheritance is lost. It almost always involves a second marriage. Basically, a spouse dies. The survivor remarries. The newlyweds place assets in joint title. The survivor dies and the assets are inherited by the second spouse. Titles, deeds, beneficiary designations, and other tools override wills, so it doesn’t matter what the will says. The children & grandchildren have now been accidentally disinherited in favor of the new spouse.

This can also happen when someone divorces and remarries.

The worst case I’ve ever seen was a widow who remarried. The new spouse moved into her home. He then sold his home, vehicles, and other property. Since her home is now his home, they place his name on the deed, on vehicle titles, bank account titles, etc … When she died, her heirs received nothing, because everything became his property. When he dies, his children will receive the proceeds of the sale of his property plus all of the property he inherited from his wife.


Estranged Family

This is a big one that I’ve seen more times than I care to remember. Someone, usually a very young person, receives an inheritance from mom or dad. Before long, often within a matter of weeks, an estranged parent shows up looking to “repair & renew” the relationship with their child.

Inevitably, the estranged parent has no home, but could build a better relationship with the child if they owned one. They usually need a car. Of course they have shabby clothing, no electronics, and on and on it goes. They all seem to need an elaborate vacation, some one-on-one time with the child. In no time at all, often in just a couple of months, they have convinced a young, immature, emotionally vulnerable person to spend their entire inheritance purchasing gifts “needed” to rebuild the parent-child relationship. Once the well is dry, the estranged parent disappears.

It doesn’t just have to be young heirs. I’ve seen it happen with heirs who have intellectual disabilities. The disability isn’t enough for them to have a guardian, but it is enough for them to quickly lose everything to unscrupulous family.

The worst case I’ve seen involved an intellectually challenged heir. The deceased father had bequeathed plenty of money to the heir. A few weeks after the inheritance was received, an estranged mother showed up looking to rebuild the relationship. When aunts & uncles ran interference, the mother talked the heir into moving several hundred miles away and cutting off all other family relationships. It took about 6 months, but the heir eventually came back to the aunts & uncles, completely broke. The heir had purchased mother a beachfront condo, a couple of sports cars, and several other expensive items. When the money was gone, his mother kicked the heir out of the condo with only the clothes on his back. The estranged mother effectively received the entire inheritance, leaving the intellectually challenged son broke.


Legal Fees

You have lost your mind if you believe that your children will not argue over money. They did it as school kids. They did it as teenagers. They did it as college students. And they will do it as grown adults.

Unfortunately, in high stress situations, such as the loss of a parent, it doesn’t take much for family relationships to breakdown beyond repair. Once that happens, the gloves come out. Sisters sue brothers. Brothers sue sisters. Aunts sue nephews. Nieces sue uncles. There is no end to who will sue whom. Once filed, the lawsuit becomes the fuel of an uncontrollable emotional fire. Both sides will sue each other until there is nothing left to inherit. And it doesn’t have to be much money. I’ve seen family sue one another over sums as small as $25,000.

By far, the most uncontrollable family legal feud I’ve ever seen was between 2 siblings. In all, a $10,000,000 inheritance was consumed until neither sibling received an inheritance.


Up In Smoke

I’ll venture to say that there is not a single family in America which hasn’t been touched by alcoholism & drug abuse. We all know who in our family has those problems. Oftentimes it’s more than 1 family member. Alcoholics & drug addicts also receive inheritances. When they do, the party doesn’t stop until they’re either dead or out of money. If you’ve ever dealt with alcoholism or drug addiction, then you know just how fast alcoholics & drug addicts can spend money; they have a lot of “friends” to help them.

Recovering alcoholics & drug addicts can also fall off the wagon and easily revert to their old habits. A shortage of money may have been all that was holding them together. When they receive an inheritance, that barrier no longer exist.

I don’t know how much money I’ve seen wasted on drugs & alcohol, but it is a lot. I frequently see heirs develop long arrest records associated with drugs & alcohol, but the abuse continues nonetheless.


These are just a handful of the more common ways family wealth is lost. There seems to be no end to the ways which heirs can, and do, lose their inheritance. And there isn’t necessarily just one cause. Frequently, if not usually, more than 1 cause comes to bear, separating an heir from his inheritance.

The good news is that mom & dad could have easily prevented every one of these scenarios and you can do the same for your heirs. A little prudent estate planning and objective decision making is all it takes.


These comments aren’t to say that the author has failed in his duty to advise clients. Rather, he is usually pulled in by friends & neighbors in such situations. Occasionally, he is also drawn in by clients who are connected to such cases, usually as heirs, custodians, or guardians. Only in a handful of situations has he had clients ignore his advice to the extent that he finds himself directly involved.

Sapiat Asset Management is an independent registered investment advisor, specializing in financial planning based, asset management for Gen X Individuals & Families and their Trusts & Businesses.

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