The Challenge

Receiving an inheritance should be a blessing. If you are not careful, it can become a curse.

Losing a loved one is a devastating event. It can be a confusing time where emotions are running high, and things seem to be moving quickly. This is hardly the time to make snap decisions while in a fragile emotional state. 

It is projected that 45 million household will transfer a total of $68 trillion in wealth to heirs and charities over the next 25 years. Inheriting a large sum of money impact every aspect of your financial life. What does an inheritance entail? How do you protect it? And how do you navigate and resulting liabilities?

The Considerations

Coming into sudden wealth may feel like a blessing. Your first instinct might be to think of ways to spend the money. Should we buy that vacation home we always dreamed of? How about buying a boat or a fancy sports car? Maybe we should just pay off our mortgage or set this aside for our children’s or children’s education?

Beneficiaries may be in various stages of their lives. Their priorities and potential needs may be different. This is why there is no “one size fits all” approach to managing an inheritance, but there are some key concepts to take into consideration.

• Beware of Taxes– Depending on the type of asset inherited, and/or the size of the estate, taxed may be due. There is the potential for income taxes, estate and inheritance taxes. Additionally, where you reside, and where the decedent resided can also have an impact on the type of taxes paid.
• Protect the Inheritance– This is something that you need to plan for in advance of receiving the inheritance. You might want to consider different ways to protect your inheritance from creditors, judgements, and from losing it in the event of a divorce.
• Be Patient– I certainly hope you weren’t waiting for a loved one to pass so you could get an inheritance. Your wants and wishes can wait a little longer. Anyways, it may take some time to get your inheritance as their estate needs to be settled. Take you time. Develop a plan, and determine the best use for this sudden windfall.
• Avoid the “Found Money” Mindset– There is a tendency to spend “Found Money” (i.e. inheritances, lottery winnings, gifts) more frivolously than money you personally saved and earned. This is one of the reasons why you need to be patient. Take your time and figure out how this fits into your overall plan.

The Solution

How you manage and handle an inheritance largely depends on the specific details of the inheritance, and your unique financial situation. Either way, developing a plan is generally the best place to start. What is critical is that you have a team of professionals working for you to place you in the best possible position for success.