May 21, 2015

Inheriting money can be a strange feeling for many people. It usually comes after the loss of a loved one. It can be complex because of personal relationships or for financial reasons. It’s an emotional and often a confusing time that can become overwhelming.

Another challenge comes from the fact that these dollars were never earned by the person inheriting them. That usually results in a different mentality or approach. The average person who inherits large sums of money spends a lot of it on unimportant things. When grieving it can feel good to go on large vacations, purchase new TVs, cars, or even homes. When these purchases are made too quickly it can be to put a “Band-Aid” on the pain. What we see too often though is a sense of sadness once these decisions have been made and the newness of the items wears off.

When working with someone who has received an inheritance, our goal is to ensure the legacy of this gift is as impactful possible. There are a few things we advise our clients to do.

  1. Don’t make ANY decisions for a period of time. Put the money into the bank and take no risk. Give yourself some time to grieve.
  2. Take a small portion and do something nice for yourself or your family (or sometimes even your community via charitable contributions).
  3. Do some soul searching on where you are in life (and then some financial planning). What’s truly important to you; what are your goals; and where do you stand? If these dollars will allow you to pay off your mortgage and retire, consider it. If it will help you provide for your child or grandchild’s education, discuss it. This is where an open dialogue with family and your advisors make sense.
  4. Seek that guidance from those you trust the most. Talk to your family/spouse/partner. Meet with your financial planner, accountant, and attorney. Make sure you fully understand any financial decisions you’ll be considering.
  5. Take the next steps and start making progress on your plan. Times like this can create “financial paralysis” out of fear of doing the wrong thing. Through my experiences, I’ve almost always heard that making smart financial decisions after a loss helped the emotional recovery. You know you’re being a good steward of the money and the positive decisions (and impact created) would make the person who left the money proud.
  6. Review regularly. As with any financial planning decision, it’s not “one and done” or “set it and forget it.” Work with your family and financial team and do regular progress reports. We’ll often see people second guess their decisions if there isn’t enough communication. You don’t need to feel remorseful or sad. You should celebrate making these smart and well thought out decisions.

We know that money and finances are one of the major causes of stress in our world. When you add losing a loved one it can be a scary and daunting time. But taking your time and working with people you trust will help. Ultimately you should feel relieved and excited about your future after going through this process. If I’m lucky enough to leave a nice chunk of money when I’m gone I don’t want it to create stress. I want it to financially empower my loved ones to take the next steps in their lives. That legacy, if planned properly, can go on for generations.

If you or someone you care about has gone through, or expects to go through this situation, let us know if we can help.

Jeremy Taylor, CFP®, ChFC®President, Mainspring Wealth AdvisorsCertified Financial Planner™