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How to Manage an Inheritance

According to the Center on Wealth and Philanthropy (CWP) at Boston College, an estimated $41 trillion will pass between generations by the year 2055.  For many people who have never given any thought to what they might do with an inheritance, even if it’s a modest amount of cash, the gift will seem like a burden, rather than a blessing.  Often, anxiety and guilt increase in proportion to the amount of money involved.  In fact, substantial inheritances that can truly be considered life-changing sums of wealth can spark financial and emotional reactions that make it difficult to set goals and make financial decisions.
If you are the beneficiary of an inheritance, no matter what the size, these three strategies can help guide you to integrate your new wealth successfully into your life.

  1. Stop and take a deep breath.  Amazingly, a 2000 study by Oppenheimer Funds found that about 40% of individuals who received an inheritance of $50,000 or more spent less than a week deciding what to do with it.  Stop and think.  Is that how you’ve made other financial decisions in your life? If not, rather than embark on an emotionally fueled, reckless spending spree, step back and take some time before making major financial decisions.  Sure, you may have always dreamed of driving a particular car or living in the most exclusive neighborhood, but it’s important to consider how those decisions might impact the rest of your life.

    Before you go shopping, make a list of potential purchases with dollar figures attached.  Then, put the cash in a money market account for six months to a year.  That will give you time to grieve, research purchases and investments, and ensure that the decisions you make about how you want to use your legacy match your own values.

    Of course, before making new purchases, you should take care of credit card debt.  Also, if you don’t have an emergency fund of 4 to 6 months of living expenses stashed in liquid investments, you might consider using part of your inheritance to begin one.

  2. Consider professional advice.  Do-it-yourself investing may have worked just fine for you pre-inheritance, but now it may be worth paying for investment advice, if only to put all of your well-meaning friends’ advice into perspective.  Of course, the value of good financial, legal and tax advice increases with the amount you inherit.

    What should you look for in an inheritance plan? In Sudden Money: Managing a Financial Windfall, certified financial planner Susan Bradley suggests the following three steps for developing a successful long-term plan: chart your goals after a reflective period; select investments according to your desired results; and establish systems to keep everything on track.  This approach should be at the heart of any financial plan.

    Additionally, there’s a growing niche in the financial advisory market that could be helpful to you. A growing number of wealth counselors conduct weekend retreats, seminars, and workshops that address the variety of problems that wealthy people wrestle with.  Their goal is to help you resolve any nagging emotional issues, so you’ll be able to make good financial decisions and use your wealth to fulfill your goals.

    If, however, you would rather explore your feelings on your own, there are plenty of useful resources online. You might start with a visit to the Inheritance Project at www.inheritance-project.com. It was founded in 1992 by Barbara Blouin, Katherine Gibson, and Margaret Kiersted, heirs interested in exploring the emotional aspects to wealth. The Project’s Trio Press is the world’s largest publisher of educational materials on inherited wealth.

    And if you’re looking for a support group, many philanthropic organizations, in addition to their primary work of raising funds, offer helpful workshops and seminars for inheritors.  Among them are The Wealth Conservancy, Inc. at www.wealthconservancy.com and The Gallo Institute at www.galloinstitute.org.

  3. Keep your eye on the big picture.  Just as any financial professional will encourage you to take a long-term view when it comes to investing, you should adopt the same philosophy when it comes to integrating inherited wealth into your family.  In particular, if you have a large inheritance, it is important to recognize that your wealth may change not only your life, but the lives of your children.  Accordingly, it is essential to prepare your children as best you can to be good stewards of the wealth they will one day inherit.  Barbara Blouin’s booklet Coming into Money: Preparing Your Children for an Inheritance, available from Trio Press, is an important resource for parents considering giving substantial money to their children as young adults.  It discusses the perils of inheriting early and suggests how some advance financial planning can help empower your children financially.

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