What Is Inherited Wealth?

Inherited wealth is money that one person inherits from a family member or other acquaintance rather than earning it through work or some other endeavor. The person who inherits money usually does so when his or her benefactor dies and passes the wealth along via a will. Those who receive inherited wealth are often held responsible for significant taxes upon it. Depending on the circumstances, these taxes can be avoided through the use of trusts, which are entities created by those people bestowing the wealth.

Many people who have earned a significant amount of money in their lifetimes wish to pass that wealth along to their loved ones. In this way, the wealth that they earned can live on after them and benefit those who meant the most to them in life. Friends and family members can be allotted certain portions of the deceased's fortune. At times, the fortune can be significant enough that those receiving the wealth, also known as the heirs, can live in comfort by receiving this inherited wealth.

Of course, there are ramifications to inherited wealth. The most significant of these are estate taxes, which often fall to the spouse or children of a person who has just passed away. Although laws differ in certain countries and certain exemptions exist which allow for wealth to be passed to family members tax-free, the beneficiaries are often required to pay significant taxes on what they have received.

For that reason, those people who have a substantial amount of money to leave for their loved ones often make plans to prevent those taxes from damaging their estates. One way this can be accomplished is through the use of a trust. When this practice is used, the trust is the entity that receives the wealth when the benefactor passes away. The wealth in the trust is then distributed to friends and family members as stipulated in the trust document. These distributions are often spared from the taxes that are associated with estate tax laws.

There are many critics who feel that the practice of inherited wealth keeps alive the wealth discrepancies that are prevalent within society. These critics feel that rich people who keep their money within their families instead of spreading it across society at large are simply perpetuating the gap between rich and poor into future generations. Still, one of the individual freedoms most held dear by people is the right to choose how to spend their money, and, for many people, allowing descendants to receive inherited wealth is a cherished privilege.