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Understanding Inheritance: Trust The Process

Inheriting money from a family member can be a blessing or a burden. How tempting is it to run out and put a down payment on a Mercedes-Benz or get that Cartier Love ring when a large sum of money suddenly appears in your account? As good as these material items may make you feel for the moment, what happens when these new purchases begin to eat into your income or your loans keep increasing while your ‘stuff’ depreciates.

Instead, imagine managing your inheritance with care; leading to less debt, increased future wealth and greater financial security. This guide to receiving an inheritance lays out three easy steps to make the most of your new money:

Resist the Urge to Splurge

The time following the passing of a loved one is often difficult and emotional. This is also known as the ‘Legacy Stage’. Remember: this money is the legacy of your dearly departed family member. As part of this period of reflection, resist making knee-jerk decisions that you will regret down the road. Often people feel differently about the money they inherit versus their regular income, making it easier to quickly spend on lavish goods. Wouldn’t your family rather see you use the money wisely to ensure future prosperity, as opposed to blowing it all at a car dealership? To put that money to good use, the first thing you should do is pay off any lingering debts. We’re talking about student loans, mortgage payments or car loans. Yes, you heard that right, even your mortgage payoff should be considered! Conventional wisdom in the financial world says keep your low interest tax deductible mortgage and invest to get a better return, but there is a significant psychological benefit to eliminating even the “smart debt” in some cases. Doing this may put you at greater ease by eliminating future interest on loans. Writer Alex Chee recounts the freedom gained from paying off his student debt with his inheritance. “I paid for my college and was left with no debts, an extraordinary gift” writes Chee, “this gave me the freedom to intern at a magazine that published my first cover story.” This initial period of time, post inheritance, should be low-risk, focused on reflection and creating a solid foundation for your future concurrently remembering your loved one’s legacy.

It’s a Team Effort

Once you’re ready, the next crucial step in making the most of your inheritance is realizing that you don’t have to do this alone! Assembling a team of professionals to help you best manage your finances may maximize the potential of your inheritance. The right team of experts on your side can help grow your wealth and plan your financial future for years to come. A Certified Public Accountant (CPA) and an investment professional are two essential players you want on your dream inheritance team. Firstly, a CPA can best advise you on your tax situation. Second, an investment professional, such as a Certified Financial Planner (CFP) or Certified Financial Fiduciary (CFF) is critical for building a road map for you and possibly future generations, as they can properly invest for you and provide a plan for success. Most CPA’s and Financial Advisors will work together to insure your i’s are dotted and t’s crossed. This planning is also known as the ‘Patience Stage’, because choosing the right team to help manage your financial interests can take some time. Through this stage, as you begin to formulate a longer term strategy, it might be okay to open yourself to a little more stock market exposure to begin patiently gaining long-term wealth.

Trust the Process and Treat Yourself

By this point, you’ve been through a lot, learned a lot and with the right team, you’ve certainly made a lot of strong investment decisions. Your plan has been completed! If feasible, now is the time to use a portion of that inheritance to treat yourself and do some good in the world. Using 10% of your inheritance for that vacation you’ve dreamed about or donating 10% to charity could be a very satisfying move, without jeopardizing your future. A good financial plan will hone in on if and how much you can splurge or donate while still meeting your long term investment goals. This is also known as the ‘Horizon Stage’ when you are able to increase your stock market exposure further to make your goals on the horizon possibly more attainable or maybe even view that horizon from a beach in Hawaii.

Remember, it’s a team effort! You have friends to get you through these tough times, along with savvy specialists who can assist you in making the proper financial decisions. Your ‘Demand Legacy’ portfolio will ensure that the memory of the deceased lives on while diligently managing your money for generations to come.

This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

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