Judy Martel was a senior editor at BankRate (a partner of Dollar Stretcher).  She still blogs about financial news for the site.

Her book “The Dilemmas of Family Wealth”  was published by Bloomberg over five years ago. However, the stories she tells are timeless and fascinating reading.

You would not expect us military veterans to have this “dilemma”, but in the next six paragraphs I might be able to change your mind.

When people gain financial independence, they may not be planning to leave a huge legacy to their heirs or to charity. This is especially true if you’re a military retiree with a pension that stops when you do (plus perhaps some survivor benefits). You make sure that your retirement portfolio’s projected survival rate is high enough to handle a prolonged bear market, and then you retire with the intent of spending every last dollar.

However, there’s a seldom-discussed side effect of that approach. If you want your portfolio to survive 95% (or even 100%) of the worst-case investment scenarios, it means that you’re practically guaranteed to have money left over when you die. You’ve already set your lower limit at “0” for the worst-case situation, and that usually has only a 1-5% probability of happening. Most retirees are quite conservative in their planning, so the “worst case” hopefully never has a chance.

But wait, even that might be overkill. Retirement planner Ty Bernicke has noted that retirees spend less as they age– a phenomenon both discussed anecdotally among hundreds of financial advisers and also recorded by the U.S. Department of Labor.  William Sharpe, Nobel-prize-winning founder of FinancialEngines.com, has also concluded that most retirees “save too much” for their retirements.

Don’t get me wrong: you should plan for the worst in retirement while hoping for the best. But follow that logic to its conclusion, where you expect your money to last longer than you do. You might annuitize all of your assets for 100% of your income (so that you have nothing left when you die), but almost all of us will leave an estate. In fact, if you’re a dual-income family or if you start your retirement with substantial income-producing assets (like rental property or dividend stocks) then the estate might be an impressive one.

Like other retirees, my spouse and I plan to try to spend most of our wealth. If we fail in that goal then we hope our daughter inherits when she’s in her 80s. Even if we fail in that goal, too, it’s still actuarially likely that she’ll inherit in her 60s.  By then I sure hope she’s working for love, not for money, and no longer needs our estate for her financial independence.

If that’s how our plan works out, then she’s quite likely to disclaim our inheritance and pass it on to our grandchildren. But what will they do with it? More importantly, what will it do to them?

And there it is: a dilemma of family wealth.

You’re unlikely to ruin your children or grandchildren with affluenza.  You’re probably not going to cripple their work ethic or kill their sense of self-esteem. However, you may still leave more than enough assets for them to fight about, causing years of pain and estrangement. The discord comes from not understanding the deceased parent’s intentions (and possibly a resurgence of sibling rivalries or in-law envy). In the worst cases it can cause excessive spending and even addictive behavior with gambling and drugs.

Judy Martel puts her stories together from an impressive group of contributors. Nearly two dozen authors, attorneys, professors, counselors, inheritance experts, and wealthy heirs explain how a well-meaning scion’s expectations can go terribly astray if family members are left out of the process. (One of the contributors even wrote an entire book about how to pass on the legacy of the legendary family summer home.) She bolsters their advice with stories from families who have gone through the cliché of “shirtsleeves to shirtsleeves in three generations”: the inheritance was passed on to the second generation and wasted by the third.

The stories themselves are voyeuristic schadenfreude… until you consider the possibility of it happening to your family. Then it suddenly becomes important to understand what you’d like to do with your wealth (because you’ll die before it’s gone) and how you’d like your family to work together to carry out your wishes. After Judy Martel presents the problems, she lays out several pages of suggestions and chapter checklists on how to figure out a family plan, how to share it with your heirs from childhood to adulthood, and how to help the whole family agree on the execution.

It’s still your money as long as you’re alive. But if you don’t start talking about your goals and plans with your children, from their younger years up through their own parenthood, then they won’t have any idea how to carry out your legacy.

When you discuss a family mission and a wealth plan, you’re sharing your philanthropy with your family while you’re still alive… and you ensure that your vision continues after you’re gone. It’s also a wonderful family activity for passing on your accumulated wisdom while helping your descendants develop their own values.

Of course you can still continue with your fantasy to spend your last dollar on the hearse. But when (not “if”!) your money outlasts you, then it’s good to know that your philanthropy can outlive you too.

Related articles:
Raising a money-smart kid
Building the ultimate investment portfolio
Book Review: Liz Weston’s “The 10 Commandments of Money”
Book review: Eric Tyson’s “Personal Finance in Your 20s For Dummies”

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