Dealing with the loss of a loved one is difficult. For some, this loss happens while inheriting a significant amount of money or other assets.
Getting help to express your grief is essential, and so is being mindful of the next steps in managing your new money. If you are an executor for someone’s estate you will almost certainly need help to navigate that process, too.
Let’s explore some of the key questions and challenges that arise when people experience sudden inherited wealth.
Feeling Guilty About Inherited Wealth
“I didn’t earn this and I don’t feel like it’s my money to spend.”
This is a common sentiment when inheriting wealth, as inheritors often feel uncomfortable with money they didn’t make themselves. But most families want future generations to thrive and to have what they need to make a difference in the world.
Money can help fund education, buy a family home, and support enjoying time together. This might be just what your loved one wanted for you when they listed you as the beneficiary on their IRA.
Reconciling the Origins of Wealth
“My family made this money on oil and coal and other things that caused harm in the world. How do I reconcile what I have with where it came from?”
Sometimes family money can be viewed as having a dark past. One client told me he felt his inheritance had “bad juju” because it was earned from oil wells that devastated the land. Reconciliation eventually became possible once we transformed his inheritance from something that troubled him to something that aligned with his values.
First, we transitioned his inherited portfolio to one filled with companies that greatly reduced greenhouse gas emissions and helped build affordable housing units. We then calculated how much he could sustainably give to charities that maintained open space for public use and regenerated lands that had been harmed by energy extraction. Finally, gifting appreciated stocks to these charities helped save on taxes and started a necessary healing process for him to fix some of the wrongs he felt his wealth had perpetuated.
Aligning your inheritance with your values and donating to charities or organizations are just a few easy ways individuals can reconcile their inheritance with its origins. Opening a donor advised fund, being philanthropic, or providing reparations can also offer peace of mind to some.
It’s understandable to feel conflicted about the origins of your inheritance. Luckily, there are many ways to connect inheritors with resources and financial advisors who can provide guidance, including organizations like Resource Generation and Values Advisor.
Managing Inheritance Responsibly
“What if I invest it wrong and lose what I’ve been given? I don’t want to dishonor what was built before me. I’m afraid to make changes to the assets I inherited.”
Some people feel the Exxon stock they inherited from their grandmother is their connection to her and worry she’d be upset if they sold it. It can be difficult to part with shares of stock that are seen as one’s last remaining link to a loved one.
It’s important and an honor to consider the intentions of a loved one. So often, an inheritance is left behind to help an inheritor reach their dreams and goals; it’s entrusted with the hope that they will do what is right for them with the money.
And yet, being a good steward of the money might mean making significant changes to keep that inheritance safe. For example, having a portfolio of stocks that represents a comparatively small number of companies and sectors in the economy can threaten the viability of even a large portfolio.
Managing an inheritance responsibly can sometimes feel overwhelming. Inertia around money is understandable since investing can be intimidating or mysterious. Having a financial professional to help you navigate the next steps for your nest egg is perhaps the best step you can take.
When considering who to work with, it’s important that you hire someone who has your best interests in mind. Whether you’re a child, grandchild, loved one or widow, having a reliable financial partner is crucial when making financial decisions, especially during a difficult time. When searching for a trusted professional, consider hiring a CFP®, Fee-Only, Fiduciary Financial Advisor.
Align your money with your values.
Choosing a Financial Advisor
“My family’s advisor knows all about the money so maybe I should just keep the status quo. Plus, it seems they’ve done right by my family so I guess they know what they’re doing.”
Just about everyone needs someone to help them create a financial plan tailored to their goals. The advisor who was right for your loved one may not be the best fit for you.
Your financial advisor should be able to explain things plainly, without jargon, and should put your goals first. I always encourage people to speak with several potential advisors to get a sense of who best fits their style and can help with your money goals. When searching for an advisor, consider the following tips in this guide on how to choose a financial advisor.
The National Association of Personal Financial Advisors (NAPFA) is also a great resource to find advisors who do not take commissions or sell products that may not be in your best interest. They publish a great list of questions to ask in the interview process. Remember, go with an advisor you understand (no jargon!) and who understands you.
Creating a Financial Plan
“I’ve heard stories about people who blew their inheritance in just a few years. How do I know how much money I can spend without running out? I’ve never had this much – can I retire early?”
Financial planning should be an integral part of your investment management. How you invest money should be closely tied to your unique goals and situation, not to the vagaries of the stock market.
Before you buy a fancy new car, rush to pay off your mortgage, or invest in something you don’t understand, make sure you are clear on what taxes you might owe on your inheritance (if any), and how best to prioritize your financial goals and obligations.
A financial planner can help you develop a road map for many paths: paying for college, having a tax strategy that won’t catch you by surprise, creating a fruitful investment portfolio that is as stress free as possible, and providing a clear idea of what you can sustainably spend and give to not run out. They can even help take care of boring but important matters like making sure you have enough insurance and planning for what happens to your assets when you die.
Arguably, everyone needs this help; but when you have new money you didn’t have before, it’s even more important.
Three Steps to Take Upon Receiving an Inheritance
Inheriting a large sum of money or assets can often be disorienting. In the moment, it’s not always easy to know what to do or where to start. Here are three key steps to take that can provide clarity, direction, and protection when you need it most:
- Make a list of goals for yourself and your loved ones, and take stock of what savings, assets, and debt you have.
- Contact several financial planners who can help you with more than just investing. Your advisor should take details of your whole life into consideration – not just the money part – so when you incorporate the financial piece of it, it can fold into one coherent strategy. Choose the person who makes you feel comfortable and answers your questions in a way that makes sense to you.
- Take it slow. Well-meaning friends and relatives may suggest certain things to buy or invest in, such as a business or life insurance. Make a comprehensive financial plan with an advisor first so you get it right.
By going slow and doing your due diligence, you’ll put yourself in a position to not make mistakes that could cost you down the road.
Gaining sudden wealth can seem like a dream come true – and it can be. And yet, you want to be mindful of not only making your money last, but honoring the legacy of the loved one who trusted you with their life’s labors.
Many clients have told me, “I’m not sure why I didn’t have an advisor before. I feel like you have my back and I’m not going to stumble.” If you or someone you know is inheriting some money, you will probably want to feel this way, too.
Reach out to an Abacus advisor today and schedule a free consultation to see if we’re the right fit for your needs.