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Tips for Managing an Inheritance

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Receiving an inheritance is a unique life transition that places individuals at a difficult crossroad between the familiar life they know and one that is new and seemingly full of possibility. But the new and unknown can also be stressful and cause individuals to make rash decisions and lofty promises that may leave them with regret.

Unfortunately, too, so many inheritors of wealth aren’t aware of the tools, people, or resources that are available to help them make sense of their new situation. 

 No Move is the Best Move (At First)

Susan Bradley of the Sudden Money Institute teaches as one of her fundamental principles that when money changes, a person’s life changes, and vice-versa. And while change can be a positive experience for many, it is not without its own challenges. 

Psychologically, our financial lives and our emotional lives are intertwined. We, as humans, tend to make decisions with our money based on how we feel. And how does one feel about a drastic change to the financial circumstances to which they have grown accustomed? Naturally, a host of feelings may emerge—excitement, hope, grief, and possibly relief from financial strain or worry. 

Susan Bradley has even likened the human response to receiving an inheritance as a state of shock, similar to the feeling you get when you suddenly realize you can’t find your car keys. There is uncertainty about what to do next, how to proceed. And this feeling can last for months. It is this rush of feelings about the new situation that can cloud a person’s judgement and cause them to make imprudent money moves. 

A common problem we see is that individuals begin making promises to friends and family members about loans or financial support. While their intentions are pure, they are often premature and can be damaging in the long-run. 

As such, we recommend taking a step back and doing some self-evaluation of your new situation before making any major decisions. 

Yes, the inheritance of wealth can be life-changing. But like with any life transition, both the practical and emotional sides of the change will need to be addressed in order for sound decisions to be made. 

Consider the Implications of Your Inheritance

Individuals tend to have different relationships with inherited money since it is not money that they earned or saved themselves. Due to the nature of a sudden acquisition of wealth, many individuals tend to:

  • Overestimate how far their money will go
  • Believe they have more buying power than they actually do
  • Quit their jobs
  • Invest in unresearched business propositions
  • Give large loans or gifts to friends and family members

In short, sudden wealth can cause individuals to lose sight of bigger picture, long-term thinking. As financial transition experts, we urge our clients to take a step back, evaluate their priorities, and really explore what they’d like their futures to look like. Then, we look at the steps we can take to make that a reality. 

  • Debt Repayment: If an individual has struggled with managing or eliminating debt, their inheritance may be best served by paying down consumer loans, student loans, or other notes. 
  • Education Planning: An inheritance can be a great opportunity to fund a college savings account for children or grandchildren. 
  • Retirement: Many Americans are underprepared for retirement, so an inheritance may be a great chance to catch up on retirement savings.
  • Lifestyle Changes: Inheritances can help make lifelong dreams like moving to a better neighborhood or starting a business a reality. 
  • Estate Planning: It’s important to put the intentions for your assets into writing should something happen to you.

Enlist Support

Deciding how to best utilize an inheritance takes strategic planning and is best done with the help of the right professionals. We recommend inheritors consult with a financial advisor, a tax planning specialist, and an attorney to help make a smooth and positive transition.  

The team at Northstar financial planning understands that the emotional and practical sides of managing an inheritance are interrelated and can greatly affect the outcome of the event.

As Certified Financial Transitionist® (CeFT) professionals, we have been specifically trained to assist individuals undergoing, or about to undergo, major financial life transitions. This practical training contributes greatly to our ability to help individuals manage the financial, emotional, behavioral, and cognitive stresses related to events such as inheriting wealth. We have both a passion for and extensive experience in this type of work.  

Also, Read or Northstar Related Article: 5 Life Transitions and Times When a Financial Advisor is Needed

Whether your inheritance is unexpected or something you’ve anticipated for a long period of time, how you manage the transition can greatly affect your financial future. If you’d like more information on the work we do with assisting clients through these major life changes, feel free to schedule a complimentary Get Acquainted meeting with us today. Our team of advisors would love to help you navigate today’s life changes for a more promising tomorrow. 

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