5 Inheritance Mistakes for Heirs to Avoid

If not careful, heirs can fall into pitfalls like blowing an inheritance or letting it breed family rivalry. 

Woman on green with money.

Giving away all the cash they inherited and failing to receive expert guidance are two common miscues heirs commit.

By + More

Inheriting money or property sounds like a pretty sweet deal, right?

Not always. Sometimes heirs who aren't money-savvy wind up blowing the bank and getting used to a more lavish lifestyle that could get them into trouble. In other cases, an unequal inheritance may create rifts between relatives or trigger guilt in someone who hadn't expected a large windfall.

The best way to avoid most of these inheritance issues is for the benefactor to do estate planning while he or she is still alive, perhaps setting up trusts instead of leaving lump sums or discussing intentions with heirs to prepare them. But most people don’t like to dwell on their own mortality, so that doesn’t always happen.

Here's a look at potential mistakes heirs make and strategies for avoiding them.

1. Spending the money carelessly. For heirs of modest means, receiving a large sum of money can lead to big purchases such as lavish cars, houses or boats – and they may not factor in the cost of maintaining these new toys, spelling trouble in the future. "If a beneficiary hasn't had access to money before, it's that Sudden Money Syndrome," says John Burns, chief financial officer and co-founder of Exencial Wealth Advisors, which has offices in Oklahoma City and Plano, Texas. "What may have taken mom and dad a lifetime to build can be quickly frittered away."

Danielle Mayoras, an estate planning attorney and co-author of "Trial & Heirs: Famous Fortune Fights!" with her husband Andy Mayoras, has observed this mistake in action, too. "We've seen all sorts of cases where there's crazy spending or going to Las Vegas and not investing and putting the money away as the person leaving the money wanted them to," she says, and advises people to consult a financial professional they trust before making large purchases with an inheritance.

[Read: 3 Important Estate Planning Questions.]

2. Letting jealousy drive a rift in family relationships. When survivors don't get the inheritance they were expecting, it can create resentment among family members. Maybe one child cared for a sick parent, so mom and dad left a larger portion of the estate to the caregiver, but siblings expected to receive equal amounts. In blended family situations, an ex may inherit assets because the will wasn't updated, or children from a previous marriage may feel slighted when a new spouse inherits the house.

"We see a lot of fighting between siblings who don’t get along or second or third marriage situations where adult children are fighting against the newer spouse," says Andy Mayoras, who’s an attorney. When dividing up items that may have more emotional than financial value (like grandma's costume jewelry or the family silver), he says it may make sense to do a round robin or bidding system in which people place sealed bids and give up that portion of their financial inheritance to pay for the item in dispute.

If you've received a larger share, Danielle suggests being sensitive to other relatives' feelings by not showing off a new car or bragging about vacations. "When you do have money, people treat you differently," she says. "If you're low-key, there's less jealousy."

[Search: U.S. News Financial Advisor Finder.]

3. Not getting expert advice. Even if you're not the type of person to buy a boat or fly to Vegas on a whim, you could likely benefit from the advice of a qualified accountant and attorney if you receive an inheritance. Once word gets out, you may receive solicitations from people offering you "investment opportunities" or other ways to spend your inheritance. "Sometimes the beneficiaries have life insurance or investments, and a lot of people are trying to sell beneficiaries things that might not be in the beneficiary's best interest," says John Lauer, an attorney and chair of the trust and estates practice group at MacDonald, Illig, Jones & Britton LLP in Erie, Pennsylvania.