An inheritance can enrich your life and change the world around you. It also comes with many challenges, as we discuss in this article.
Many who inherit significant wealth have never seriously considered how money will impact them and their families. In most cases, those inheriting new-found wealth have not considered all the ways life is going to change, and very few have prepared a written plan.
Inheritors of wealth often face a roller coaster of emotions. Some feel guilty, and wonder if they deserve such a windfall. Others feel an immediate desire to make a lifestyle change. Some are grieving the loss of a loved one. Many are unsure of where to turn for advice as they try to absorb what is about to happen. Some struggle with sharing their concerns, as they were raised to maintain privacy around wealth.
Identifying a wealth advisor with significant experience in managing inherited wealth can help you navigate this stressful time. We at Boston Financial Management have seen a broad spectrum of challenges when money moves from one generation to the next. Over the past 40+ years, we have helped other families through this process. We understand the issues and have been able to help clients get organized around a few key points:
- Understand What You are Inheriting and in What Entity. Most inheritances include a smorgasbord of assets, such as real estate, private investments (example: family company), stocks, bonds, mutual funds, and personal property. Often, assets are held in trusts that were created decades before to provide protection from estate tax, probate, or divorce. It is important to understand how these trusts impact you and your family.
- Consider Your Dreams and Desires. Pause and take some time to think about what the inheritance means to you. Reconsider your personal aspirations. Does the inheritance change them? Define your healthy, happy, and wealthy life. And list your goals. You are encouraged not to make any big decisions right away.
- Build a Trusted Team. Assemble a team of professional advisors who understand your goals, are attentive to your needs, and work collaboratively. Your wealth manager can coordinate the team, which should include a tax advisor and estate planning attorney.
- Create a Fresh Plan. Understand what is available for income, while assuring the assets last for future generations. A sound financial plan will enable you to own well, live well, and make prudent financial decisions.
- Consider Philanthropy. Wealth presents an opportunity to make an impact in the world. Charitable giving is a way to honor the legacy of those who created the wealth. This also can be a wonderful opportunity to engage the next generation of your family. There is a wide array of charitable giving techniques (Charitable Trusts, Donor-Advised Funds, for example) to consider while optimizing your tax benefits.
- Review Your Estate Plan. With substantial additional wealth, you should revisit your estate documents and possibly revise your plan. Update your will in light of additional assets. Perhaps create additional trusts to transfer wealth to the next generations or to benefit charities.
- Taxes, Taxes, Taxes. It is very likely that state or federal taxes will be due based on the size of your inheritance. Consider the tax obligation before determining the money available for long-term investing.
- Family Meetings. While we encourage parents to have family meetings with their adult children to share their estate plans and financial information, we recognize not all parents are comfortable following that course. We also suggest that parents consider lifetime gifts to children and grandchildren, which would assist the younger generations with large expenses, such as housing and education, or enable the children to invest the funds themselves. Lifetime giving can reduce the parents’ estate taxes, and the gifted assets are able to grow for the children and grandchildren; removing the assets and the growth associated with those assets can provide substantial estate tax savings.
Please let us know how we can help your family.
BFM is an independent, employee-owned wealth management firm, specializing in advising successful families and individuals on financial, investment, estate planning, and inheritance needs and goals. To learn more about how BFM can serve you, please call 617-338-8108.
BFM Insights Disclaimer
Important: This alert does not contain any legal or tax advice. You should always consult with your attorney, accountant, or other professional advisors before changing or implementing any tax, investment, or estate planning strategy.