Inheritance Planning: Preservation Requires Careful Thought and Intentional Action

Key Takeaways

  • Acknowledge the emotional attachment that often comes with an inheritance. Allow yourself time to process the event that triggered the financial windfall, and refrain from making major financial decisions until a long-term strategy has been considered and implemented.
  • Upgrade (or build out) your team of professionals. An unfortunate reality is, more often than not, wealth creates complexity. You’ll likely lack the time, willingness, and ability to adequately assess all the issues you now face across a number of disciplines (tax and estate planning, investment management, etc.).
  • Keep inherited assets as separate property, and fully understand tax and legal consequences before taking distributions.

Receiving an inheritance can be an overwhelming life event. It can result in strong feelings of stress and anxiety brought on by a lack of knowledge and experience in making decisions required to protect and preserve a financial windfall. If you want to start on the right foot after receiving a substantial amount of money, consider the following.

Don’t Make any Major Financial Decisions for the First few Years

Decisions of great importance require rational thought and time to consider strategic alternatives. This process doesn’t have a predetermined timeline, and professional guidance may help you sequence your decision-making in a more palatable way. Upon estate settlement, a detailed inventory of inherited assets should be created. This process will allow you to begin wrapping your arms around the asset type, location, tax status, and accessibility of funds. The only other immediate action that’s required after receiving an inheritance is interviewing and selecting a team of professionals to provide tax, legal, and financial advice.

You May Need to Re-evaluate the Team of Professionals Supporting You

Circumstances surrounding an inheritance often require you to re-examine your professional support system. The truth is, sometimes you grow out of your team of advisors, and transitioning to a team with specialized knowledge can enhance the quality of advice you receive and increase the likelihood optimal outcomes are achieved.

Consider the following as a shortlist of advisors who should help you make informed decisions about leveraging your inheritance to achieve your goals while honoring your loved one’s memory:

  • Certified Public Accountant (CPA): TurboTax may have been a suitable option before receiving an inheritance, but tailored advice and tax preparation services are likely appropriate now that your financial life has increased in complexity.
  • Financial Advisor: Mistakes, missed opportunities, and oversights in planning and portfolio management can have a drastic negative impact on personal financial health. These missteps, paired with significant wealth, can produce suboptimal or negative results that take decades to overcome. It also may be beneficial to have a layer of separation between you and the inherited assets. Emotional attachments can often lead to irrational decision-making, and an experienced advisor can provide valuable, unbiased expertise in investment management and financial planning.
  • Estate Attorney: Legal Zoom might have been adequate for creating boilerplate estate documents. However, as wealth increases, multigenerational wealth transfer, estate tax avoidance, and asset protection strategies typically become areas of concern. These topics require guidance from an attorney specializing in trust and estate planning.

Re-examine Your Goals, Values, and Priorities

The reality is that your financial situation may have suddenly and drastically changed, which may impact the way you navigate life going forward. With the right approach, it’s certainly possible to benefit from a financial windfall throughout your life and to also leave the inheritance better off than it was when received for the benefit of future generations. This doesn’t happen by accident, so proactive planning and careful consideration of priorities is required to achieve a successful generational wealth transfer.

You may also find that your goals evolve and become more philanthropic. It’s critical to understand that charitable planning is almost always a process (not an event). To maximize the value transferred to charitable beneficiaries, you will likely need to seek counsel from each of the professionals noted above (CPA, estate attorney, and financial advisor).

Keep Inherited Assets as Separate Property

Don’t commingle assets with a spouse until you’ve had adequate time to assess your new financial situation. It’s likely you may have different goals and objectives for an inheritance, so separation of funds may be appropriate. Arriving at this decision should involve multiple meetings with estate attorneys to ensure you prioritize your goals and consider a range of possible outcomes.

Final Thoughts

An inheritance offers opportunities for you and your family, but you also face a multitude of decisions that will impact you for years to come. A financial advisor with experience in inheritance planning can reduce financial anxiety, simplify your life, and give you confidence that you can successfully navigate unfamiliar territory.

If you have questions or would like to learn more send us a message.

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