Coping with your Inheritance

What would you do if a five- or six-figure check showed up one day? You might want to give that question some serious thought because, for some families, it could happen.

No, it’s not the lottery, a federal stimulus payment or the result of your ability to pick hot stocks on Wall Street.  It might be proceeds from an insurance company or a distribution from an estate.  Most likely, it also means that someone you care for deeply has died.  It’s your inheritance, a “gift” from your parents, grandparents or a sibling.

Such checks arrive every day, as men and women receive inheritances in the form of transfers of estates from one generation to another.  When an inheritance arrives it is important to be prepared, both in terms of the practical aspects of managing the assets, as well as dealing with the emotional ramifications.

Sometimes the money causes serious problems.  This is often due to …

• Lack of preparation – Very often, the recipient may know little about the money until after the death of the loved one, when a large check is suddenly presented.  Are you in line for an inheritance?  If so, do you have any idea how much?

• Lack of experience handling large sums of money – Few people have the expertise to deal with sudden wealth.  Oddly enough, people who manage well on tight budgets often have the most difficulty adjusting to a large, sudden influx of cash.  What would you do if tomorrow you received a check from an insurance company for several hundred thousand dollars?

• Spendthrifting – Many people with large or unexpected sums of money look for ways to spend the money.  Do you have a wish list of what you would do with a large sum of money, or would you invest and put it to work for your future?

Inheritances can also trigger emotional issues.  It can be difficult to remain objective about one’s inheritance.  Because the money is directly related to the death of a loved one, there’s often a conflicting mixture of guilt and elation.  It’s not uncommon for people to say things like: “On one hand, I experienced a euphoric rush.  Suddenly, I could pay off bills, put a little aside and get off the financial treadmill.  On the other, my mother had to die for me to receive the money.”

What can you do if you are in line for an inheritance?  Here are some suggestions:

1. Do not wait – Too often people put off addressing crucial issues until it is too late.  Instead, connect and work with family members while your parents or other loved ones are still alive.
2. Set up a dialogue with family members – If you are in line for an inheritance from your parents, see if they are receptive to discussing their plans and any concerns you may have. This helps take the surprise factor out of the inheritance.  Besides, it is much easier to address important issues when all parties are available.
3. Educate yourself about the estate planning process – The more you know going in, the better able you will be to preserve your inherited wealth.  Do a little research for everyone’s sake.
4. Discuss financial tools to distribute assets, reduce taxes and preserve capital – These may include making lifetime gifts, establishing powers of attorney and using trusts.  Which ones are best?  That depends on each family’s unique circumstances.
5. Respect their wishes – Remember, it is their money.  One 89-year-old man instructed his son to manage his inheritance as he saw fit and to use gifting to reduce the estate.  “Other than that,” recalls the son, “the only strict rule was that Dad wanted to keep $600,000 in his own name during his lifetime.”
6. Express your own concerns – When Rod’s father died, his mother began to date again and even talked about marriage.  Rod was concerned about his own inheritance passing to his mother’s new husband.  After several conversations, though she never did marry, the mother set up trusts to protect her family’s inheritance.
7. Plan ahead – Know how you will utilize and allocate your inheritance. That way, when the money arrives, you will be ready.  Do not create a wish list. Instead, plan how to best use the assets to help you achieve your objectives.
8. Have reliable advisors in place – Bring your attorney and financial professionals in to discuss your options and help work out plans.  Once again, their input can benefit you all along the way, not just after the death of your family member.

The key is awareness and preparation.  If you understand the perils, pitfalls and opportunities you face regarding your inheritance, you will be better prepared to utilize those assets wisely.

Where to start:  One of my services is estate planning.  I meet with my clients – and this, ideally, involves multiple generations – to help them identify their goals and discuss their options.  If you believe my input would be of value to you and your family, please contact me.  There is no obligation.
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Rich Mino, a financial advisor with Del Mar Financial Partners, Inc., works closely with families and small businesses in the Carmel Valley area.  He is passionate about making a difference in his community through financial literacy programs, and focuses on building strong relationships with all of his clients so that he can be a resource to them where needed most.  An active member of the Del Mar Kiwanis, Rich supports his Carmel Valley community through local service projects, and by sponsoring the Builders Club and Key Club leadership programs at Carmel Valley Middle and Torrey Pines High Schools.  In 2012, he is working to implement a financial literacy educational program to help prepare and educate kids with the challenges that they will face as they begin and graduate from college.  He is a registered representative of Securian Financial Services, Inc., Member FINRA/SIPC. Securities dealer and registered investment advisor.  Del Mar Financial Partners, Inc. is independently owned and operated. 12526 High Bluff Drive, Suite 280, San Diego, CA 92130. 438300 DOFU 01/2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties.  You are encouraged to seek tax or legal advice from an independent professional advisor.  The content is derived from sources believed to be accurate.  Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.  This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

Securities and investment advisory services are offered through Securian Financial Services, membe FINRA/SIPC. Copyright 2010 © Custom Communications Insurance Publishing.

Material in this article may not be reprinted without permission.

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