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Anne Slepian and Christopher Mogil
When people with strong social conscience receive an inheritance or sudden wealth, what distinct issues and questions arise for them? How can costly mistakes be avoided and people effectively navigate the choices before them? How can they find assistance that resonates with their values? These are soon to be widely-shared questions as in the next two decades, over one hundred billion dollars are expected to pass each year from one generation to the next.
In 1980, the two of us unexpectedly received an inheritance, and ever since then we have explored these questions. As the co-directors of the Impact Project, a non-profit educational organization set up specifically to help people take charge financially, we have listened to hundreds of inheritors sort through the technical, interpersonal, political, and spiritual issues of wealth. We believe that amidst the historically unprecedented transfer of wealth, there is opportunity not only for inheritors to shape more fulfilling lives, but to unleash tremendous power for positive change by using their giving, spending, investing, and leadership towards social good. We hope that readers will use the resources listed, and take steps that can help turn this dream into reality.
Many factors influence how each person experiences his or her inheritance. The following are ten key elements:
As a simple example, a fifty-year old business-owner might experience a $250,000 inheritance as a great boost towards her child's college expenses; a bereaved 17-year-old might feel drowned in the same amount, judging it as enough to live off without working for a decade or more. Whether the inheritance is a joy or a burden, the door to opportunity or an immobilizing responsibility, is largely shaped by these factors.
For many socially-concerned people, the key issues surrounding an inheritance fall into three categories: 1) taking charge of their inheritance responsibly, 2) having the inheritance enhance their relationships, and 3) effectively use their inheritance in service to the wider world.
All inheritors suddenly have money they didn't have before-for some, a lot more, and with precious little preparation. To be in charge of the money (instead of feeling like the money is in charge of them), inheritors need to get a handle on financial management and to make conscious choices about values and lifestyle. Many inheritors go through a period of denial in relation to their new resources which can sometimes last for years. Support is key: having friends, family, and professionals who can listen non-judgmentally and offer ongoing guidance.
Financial Management: A few fortunate souls are well-grounded in financial nuts-and-bolts by their families, but the majority of people are not. It is not unusual for inheritors, especially younger people and women, to need coaching with basic financial concepts and skills. For instance, what is a stock vs. a bond? How do they choose among mutual funds? How do they determine their "assets and liabilities?"
Many inheritors feel embarrassed when they don't already know such things, and get flustered when faced with sheets of numbers. They can gain basic financial literacy by asking trusted friends or family members for help, reading books, taking classes from local adult education centers, or getting help from competent financial professionals.
Depending on inheritors' skills and the complexity of their situations, lawyers, accountants, financial planners, and investment advisors may be extremely helpful--or unnecessary, or even damaging. Some inheritors "inherit" the money advisors who have been assisting their families. Inheritors need to ask themselves, "Do my advisors share my values? Are they easy to communicate with and respectful of me? Am I sure of their integrity and competence?" There is an abundance of excellent, socially-concerned financial professionals. Inheritors don't need to settle; they can shop around until they find a good match. Inheritors do well to keep remembering that professionals work for them, not the other way around.
With or without professional help, we strongly encourage inheritors to seize the opportunity to make a thorough financial plan -- something that would benefit most people, but few actually do. This includes: determining their current assets and liabilities, income and expenses; mapping out long- term financial goals including retirement, home-ownership, family education, and charitable giving; making a will (and if needed, a more complex estate plan); looking at insurance to protect the value of key assets (e.g., life, disability, home-owners); and planning tax-wise investments that are in line with their values. To those for whom this list sounds overwhelming, we encourage you hire a financial planner to coach you through it one piece at a time, it's never too late to start.
Unspoken and contradictory beliefs about money abound in society, religion, and in most families. In both subtle and blatant ways, money is viewed as a key to power, freedom, love, happiness, and security, or as irrelevant or even destructive to them; as proof of God's love or as the root of all evil. Inheritors who take the time to reflect on their class background and become aware of their underlying beliefs about money can more freely choose which family or societal dictums about money they want to honor, and which to change.
Inheritance can give people the power to stop (or change) their income-producing work, whether for a few weeks, a few years, or a lifetime. For people who are secure in their identity or who are well-installed in satisfying careers, this opportunity can be delightful. But for many inheritors, especially younger ones, the freedom not to work for pay is a mixed blessing. In a society where earning power is equated with self-worth, where so many labor at unsatisfying jobs, and where people with financial freedom are often viewed with envy mixed with disdain, many inheritors need a hand figuring out how their money can plays a constructive role in building a purposeful, satisfying life. (For further discussion of this issue please refer to How Much Are You Worth?)
Similarly, inheritance gives people the ability to buy more for themselves and others. Making a financial plan (above) can help inheritors understand the objective repercussions of different spending choices, but there are irrational and emotional repercussions as well. In a society in love with consumption, where a dazzling array of conveniences abound and spending is equated with status, inheritors face particular challenges determining whether and how their newly-acquired wealth will affect their lifestyle.
While there are no simple right-and-wrong answers to questions about work and lifestyle, many socially-aware inheritors have grappled with these issues and come up with resolutions that work. There are many people to learn from; no one needs to sort it all out alone. (To find inheritor discussions, check out the Impact Project web site: http://www.efn.org/~impact.)
No matter how much or how little money people start off with, money is already a very important factor in their relationships. A sudden change in financial status can shift their connection to others both for better and for worse. On one hand, conflicts over money have led to the end of marriages, to friends going separate ways, and to parents and adult children no longer speaking to each other. On the other hand, when people are able to reach across differences, vulnerably share their experiences, and support each others' dreams and goals, money has sometimes helped people deepen the respect and love between them. For both inheritors and their loved ones, talking with others who share a similar financial and relationship situation can be of enormous assistance.
For those who are dating, when and how do they let a serious new love know about their inheritance? Is it wise to write pre-nuptial agreements or do they erode trust? How do romantic life partners deal with significant differences in class background, in values about spending, saving, risk, and in educating children and money? (For more discussion of this issue please refer to You Say Yes, I say No.)
When is it wise to be private about money, and when does that erode closeness and mutual understanding? How can personal loans or gifts enhance relationships, not destroy them? How do inheritors and their friends deal with differences of class background, values, spending ability and financial freedom? What are ways to constructively address complex issues of guilt, envy, resentment, and stereotyping?
These are a few of the often complicated and emotional money issues that come up in relationships. We cannot stress enough the importance of communicating openly and sensitively with loved ones, early on, and to getting the support of others who have dealt with similar situations constructively. It can be helpful to employ a family therapist or consultant who has dealt with money issues specifically.
Using Money in Service
An inheritance can open the door to fresh opportunities for making a real difference in the world. It can free up time to volunteer. It can free up money--both income and sometimes principal--to give to causes or to invest more pro-actively for high social return, with greater leeway about risk or financial return. Learning to use inherited money in service to the greater human family is often key to helping inheritors experience wealth as a boon, not a burden.
Some inheritors, especially those who receive substantial sums, feel guilt and shame about their economic condition compared to others. These emotions are natural signs of caring about others' suffering, and of struggling with the important question, "What's my fair share?" Unfortunately, actions based on guilt and shame are usually forced and hard to sustain. Other inheritors avoid guilt by surrounding themselves exclusively with people of similar finances and disbelieving that their use of wealth could make a real difference to others in the world.
More motivating and constructive than either guilt or denial is a path of balance, one that values giving and receiving both to oneself and to others. With persistence, inheritors find ways to bring all aspects of their financial lives into greater congruence with their deeply-held values. Changing to socially responsible investments; creating a giving plan; developing a meaningful career; volunteering with a community group; choosing to spend selectively on luxuries and use surplus to support work for change -- these are a few of many changes that people have made over time. (For further discussion of these issues please refer to Social Investing, Community Investing, or Philanthropy.)
Many inheritors wish to use their surplus to help the groups and causes they care about, but don't know where to start. Afraid of being deluged by requests or having their funds wasted, they hold back and give far less than their heart wishes and their finances could sustain. Making a thoughtful giving plan helps enormously. To design a giving plan involves thinking through the following questions:
1) Why are you drawn to give? Articulating your concerns, values, and passions enables you to be proactive instead of responsive, and to select areas in which to focus your funding.
2) Whom do you most want to support? For instance, within your area(s) of focus, do you prefer funding small start-ups or established organizations? Efforts that are local, national, international? Will you fund individuals or organizations or both?
3) What income, assets, possessions, and skills might you give? Rather than going with an arbitrary percentage of income, think about your full giving potential.
4) How will you structure your giving? Do you sometimes want to give anonymously? What form would best serve your giving interests (e.g., a trust, a donor-advised account at an existing foundation, or a family foundation)? How can you involve others who have expertise in effective philanthropy or within your focus area(s)?
5) When will you gather options, research them, fund, and evaluate? Many well-intentioned giving efforts are stymied for lack of time. If you lack time to give thoughtfully, we encourage you to help in the process, rather than short-changing your giving.
Sources to learn from about philanthropy include: literature, other givers, conferences, philanthropic consultants, community foundation staff, and lawyers specializing in foundation law. Satisfying and effective giving is as much an art as a science, so seek out different viewpoints over the years to inform your thinking. (For further discussion of this issue please refer to Satisfying Giving Checklist)
There are many ways inheritors can get support to work through the myriad issues above. Across the country there are networks of peers helping each other use their wealth in line with their values. Many books, organizations, and professionals can offer support, including the resources below.
The issues described in this article are often visited again and again throughout a lifetime, as inheritors' needs, circumstances and abilities change. There are no fixed "right answers." By taking the next step, and then the next and the next, inheritors learn to use their new resources with flexibility, integrity and effectiveness.
Anne Slepian and Christopher Mogil are editors of More Than Money, a publication of The Impact Project.