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Common Cents

Tom and John Mills' Common Cents: Ready for an inheritance?

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Experts estimate that nearly $70 trillion will pass from one generation to another over the next 25 years. This wealth transfer is the greatest in history.

I have seen hundreds of people inherit money, and many don't handle it well. Most young people squander inheritances quickly; sometimes older people do as well. Those that manage inheritances best are usually people that didn't need an inheritance in the first place.

I have three rules for inheriting money that will help ensure a smooth and prosperous transition.

Rule number one: Don't count on it.

Some people plan their financial lives around the expectation of an inheritance. If that inheritance gets used, providing medical care for parents' children can be left with nothing. Those who fail to save or plan with the expectation of an inheritance may have to work long into retirement.

Another reason not to expect an inheritance is that it usually keeps beneficiaries from learning vital lessons about money that will enable them to manage an inheritance well.

Rule number two: Make sure you are ready for it.

To be ready for an inheritance does not mean that you have purchases planned; that is the opposite of being prepared. People who plan major purchases before an inheritance are usually doomed to failure.

Being ready for an inheritance means you are financially literate and disciplined. Inheriting money is a temptation that not many can handle. The allure of cars, boats and other expensive items is too much for most. Large fortunes usually don't last beyond the third generation.

If you anticipate receiving an inheritance, you need to set boundaries for yourself long before receiving a dime. Plan what you will allow yourself to spend and set goals to make the inheritance grow rather than shrink.

Try and set up your life so that you do not need an inheritance. Take time to read financial management books, work with a financial advisor and other experts. Those who learn and apply financial principles on their own are far more likely to manage an inheritance well than those who don't.

Rule number three: Deserve it.

Most people I work with have strong family bonds, and they care deeply for each other. Occasionally I will work with a parent who will leave an inheritance to a child they haven't seen or heard from in years. This is heartbreaking.

There are real reasons to limit or cut off contact from family, but most often, the reasons are petty. It is essential that those who stand to inherit money from a parent or family member care. This isn't just mushy advice. I have seen a correlation between the strength of family ties and successful estate transitions.

The feelings of regret of those who squander an inheritance are brutal. Take your financial education seriously and be prepared as far in advance as possible. When an inheritance arrives, the temptation to spend irresponsibly won't wait for you to be ready.

This Napa kitten is lucky to be alive. She was discovered hiding inside the engine compartment of a car that had just driven about 30 miles from Vacaville to Napa. A woman passing by helped rescue the kitten and ended up taking her home. Her name is Lemon.

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Tom and John Mills are registered investment advisers and certified financial planners. Reach them at 254-0155 or Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group (SWAG), a registered investment adviser.

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