Many of us dream of receiving an inheritance that is significant, but there are some all-too-common inheritance mistakes. The problem is, many of us are not really prepared for that inheritance and then mistakes follow that mean the inheritance becomes worth a lot less, very quickly. Inheritance mistakes are usually avoidable, so here are some common ones to be aware of for when your dream becomes a reality.
According to the Washington, D.C-based CFP Board, one-third of Americans can expect get a “significant” inheritance in their lives. The Board says inheritance cash has multiple benefits, from providing the ability to pay off long-term debt to financing a family member’s college education.
But those benefits can disappear if you’re not sure how to handle an inheritance well. “Windfalls can turn into mixed blessings when people indulge themselves or rush into their decisions about what to do with their inheritances”, states Jill Schlesinger, a financial planner and senior CFP Board ambassador.
Overall, approximately 50% of inheritances are “squandered,” says Darren T. Case, a tax and estate planning attorney at Tiffany & Bosco, P.A. in Phoenix. “And they’re squandered almost immediately,” notes Case. “Often times this is due to the beneficiary simply being unprepared to receive the inherited windfall.” There are five common inheritance mistakes people make with their inheritance when they are unprepared, but knowing what they are can help you to prevent making them.
Case says, “From an estate planning standpoint, avoiding a blown inheritance often starts with family discussions about inherited wealth, which very much differs psychologically from earned wealth,” he says. “However, assuming that the family meeting never occurred prior to the beneficiary receiving the inheritance, one recommendation to beneficiaries is to come up with a plan of what to do with the inheritance with a reputable financial advisor, and also strongly consider waiting a significant amount of time prior to making any decision.” This leads us to the first mistake you can avoid.
Five Inheritance Mistakes To Avoid
Not seeking credible and professional financial advice. We are a people who like to ‘go it alone’. But this is not one of those times, especially if you have no experience or training in financial planning or accountancy. When you find yourself with an inheritance, it’s time to find yourself a team who have the knowledge and know-how to help you make wise decisions and investments to make sure you’re getting the most out of an inheritance you’d probably like to last for a fair amount of time. A financial planner or accountant seem like obvious professional choices, but what people often neglect to think about is the legacy they could leave behind. An estate planning professional should be a key person in the team you assemble. It is now your money and with careful planning and thoughtful use that inheritance money could one day be part of an inheritance that you leave to someone that you love.
Spending Mindlessly. While you may not be a big spender, are you a ‘little’ spender? Your history and experience with money may mean that you find it hard to splurge on large assets such as a house or car, but if there’s enough money you might just use a little bit, and then another, and then another. . . This can be costly over time. Those little bits can often take us by surprise when we look at what they add up to. Having a budget (and sticking to it) is always a wise move, regardless of how much money you have.
Making Decisions Too Quickly. This gets many people into trouble in all areas of life. We need to learn to ‘hasten slowly’. Making decisions in a hurry often means that we don’t take into consideration all of the things that we should. On top of that, we’re often not out usual selves when we inherit money anyway. Senior CFP Board Ambassador Jill Schlesinger explains. “An inheritance often coincides with loss, and many people aren’t thinking clearly when their emotions run high,” she says. Slowing down and taking the time to discover the consequences of any decisions we’re thinking of making about how we use our inheritance will not make it any less, but the opposite is true. Making decisions too quickly and without professional advice can leave us with a lot less than we expected. “One of the biggest inheritance mistakes people make is spending them right away without considering the tax implications,” notes Anthony D. Criscuolo, a portfolio manager with Palisades Hudson Financial Group in Fort Lauderdale, Fla. Making decisions slowly and with the advice of someone who can see what we don’t know can save us a lot of heartache.
Giving It Away. You love your family and your friends and so it’s natural to want to pass on some of what you’ve inherited to them. The problem is, we often end up giving away so much so quickly, that we are left with very little for ourselves. It is a lovely thing to be able to help others financially, but we can do that whilst still being wise and without a sense of urgency that can arise when we first see all of that money in our bank account. “Push the pause button”, Schlesinger says. Get the help of professionals to help you create a good plan that is generous to your loved ones and also looks after you.
Being Paralysed Into Doing Nothing. Sometimes people are so overwhelmed or worried about doing the wrong thing with their money that they do nothing at all. Like bereavement, divorce and relocation, a windfall is a life-changing event and should be treated with caution and respect, Psychology Melbourne psychologist Gavin Sharp says, “It’s no wonder that people can feel a little overwhelmed. If you’re worried about ‘losing’ it, then why not invest just some of your money wisely and see what happens.” It’s good to realise that it can work for you if you get sound advice from a professional.
At Estate Battles we help our clients to think about their inheritance wisely, whether you have received one or have one to pass on. We can help you avoid inheritance mistakes. Our experienced estate lawyers offer a FREE, 10-minute phone consultation. Please contact us today!