Estate planning is an important part of preparing for your family’s financial future. The Center of Wealth and Philanthropy at Boston College conducted a study revealing that the largest transfer of wealth in history will happen over the next several decades. A similar study conducted by Ohio State University, though, found that heirs will lose, spend, or donate about half of their inheritance. With the amount of money to be transferred and the trend of spending over saving, planning for inherited wealth can help you protect the legacy being left to you and ensure financial security for your family.
Too often, important financial decisions are driven out of emotion rather than logic. The death of a beloved parent or grandparent can cause a whirlwind of feelings including grief, guilt, anger, and relief. These emotions don’t provide the most secure of foundations for making financial or estate planning decisions that will affect you and your family for the rest of your lives.
It’s easy to think of your inheritance as a windfall, which it is. That’s probably why most inheritances are spent within five years of receipt. People often mentally categorize their inheritances as “found” money and aren’t as conservative with their spending as they normally might be with earned money. Bad spending behaviors and a failure to think about the long-term implications of such financial choices can see your inheritance disappear before you know what happened.
Regardless of the size of your expected inheritance, an influx of money and assets can have a dramatic impact on your life. When handled properly, the inheritance can represent and respect your loved one’s financial legacy, enhancing your life. Fail to prepare, though, and you could find yourself burdened by tax payments, ill-advised purchases, and even potential creditor issues.
Of course, the best kind of planning starts with a conversation between you and your loved ones before they pass. While broaching such a sensitive subject is never easy, doing so can shed light on your future and making planning your financial future easier. Talking with your loved ones about their wishes and plans for their assets while everyone is still alive and well allows you the opportunity to gain a better understanding of their hopes and dreams for your future and their intent in leaving assets to you.
Before making any major decisions, it is crucial that you sit down with a financial planner and an estate planning attorney to discuss the type of assets you are expecting to inherit so a proper plan can be put into place. The way you’ll handle inherited real estate will differ vastly from inherited stocks and bonds. An estate planning attorney can also help you understand if you’ll receive your inheritance right away, in installments, or according to another distribution scheme. Understanding the tax implications of your inheritance is also a critical subject to discuss with a financial planner or tax professional.
When your financial picture changes, working with trusted professionals makes planning for your future easier. If you are expecting an inheritance, or have any additional questions, give us a call so we can help you plan for your goals and dreams while preserving your inheritance.