Inheriting money can be a double-edged sword. While it can provide financial security and opportunities, it may also come with difficult emotions attached. As a financial advisor, I’ve seen firsthand how challenging it can be to navigate the intricacies of managing a sudden windfall, especially when it comes in the wake of a loved one’s death. In this blog, we’ll take a closer look at how to approach this new financial chapter with both sensitivity and strategy.
Dealing with the Emotions
First and foremost, it’s important to acknowledge and process the emotions that come with an inheritance. The money you receive is a direct result of someone’s passing, which can bring about mixed emotions, including guilt, sadness, and confusion. Taking the time to grieve and perhaps seeking support from a therapist or counselor can be beneficial. Rushing into financial decisions while still in an emotional fog can lead to regret later on. Remember, it’s okay to take your time to mourn and come to terms with your loss before making any significant financial moves.
A Thoughtful Approach to Spending
One of the most critical pieces of advice I give to clients who have inherited money is to avoid the temptation to spend it all at once. It’s easy to be swayed by the allure of immediate gratification—new cars, vacations, or expensive gadgets—but this can quickly deplete your inheritance. Instead, take a step back and consider your long-term goals. Ask yourself how this money can improve your life sustainably. Prioritize paying off high-interest debts, setting up an emergency fund, and investing in your future through retirement accounts or educational savings plans.
Reflecting on Values and Purpose
Inherited money often feels different from money you’ve earned and saved yourself. There can be a strong sense of responsibility to honor the legacy of the person who left you this gift. Reflect on your values and how this money aligns with your goals and aspirations. Do you want to use it to support causes your loved one was passionate about? Or perhaps invest in something that would have made them proud?
You should also consider how you want to use this inheritance to build your own legacy. This might involve charitable giving, supporting your children’s education, or investing in a business venture. Think about the long-term impact you want to have and how this money can help you achieve that. Balancing your personal desires with the perceived wishes of the benefactor can help you find a meaningful way to use your inheritance.
Protecting Your Assets
Asset protection is another critical component of managing an inheritance. Without proper planning, your newfound wealth can be vulnerable to creditors, lawsuits, or poor financial decisions. Consider consulting with an estate planning attorney to explore trusts or other legal structures that can safeguard your assets. Diversifying your investments is another prudent strategy to mitigate risk and ensure long-term growth. Don’t forget to review and update your own estate plan as well. This ensures that your wealth is passed down according to your wishes and can help minimize potential tax implications for any heirs.
Strategic Financial Planning
Finally, engaging with a financial advisor can be incredibly beneficial when managing an inheritance. An advisor can help you create a comprehensive financial plan tailored to your unique situation, provide insights on tax-efficient strategies and investment opportunities, and strategize ways to grow and protect your wealth. They can also help you to understand the tax implications of your inheritance. While not all inheritances are subject to federal taxes, certain assets, like retirement accounts, can have significant tax consequences.
Final Thoughts
At Abeona Wealth, we believe financial planning is about more than just the numbers. Receiving an inheritance is a financial event that intersects with deep emotional experiences. Our goal is to help clients make sense of both the financial and emotional complexities to determine the best path forward. Learn more about our client experience here.
This blog is part one of a three-part Sudden Money Series: Inheritance, Grief and Purpose. Stay tuned for part two on grief and widowhood next month.