Seniors today are among the richest generation in history. During the next few decades many of their children and grandchildren stand to inherit a substantial amount of money. But planning for a sizable inheritance could be the key to retaining some of that money, after the initial shock has subsided.
In general, Americans today are big spenders. We have accumulated large amounts of debt, and many of us have saved very little for the future. Older generations were more disciplined to save for a rainy day. Because of this, our parents’ and grandparents’ death might leave us with the benefits of their money management styles. Receiving an inheritance, however, brings about a whirlwind of conflicting emotions. You might experience the anguish associated with a loved one passing away, while at the same time you experience the euphoria of a sudden windfall of money. Handling the feelings of guilt is enough to cause some to avoid the topic of their inheritance altogether. However, avoiding the topic is not a good strategy. Talking about the inheritance ahead of time is critical to coming to terms with and managing the money successfully.
It is not surprising to learn that many people who inherit money put little thought into its management, and spend it all quickly. They have not planned ahead and earmarked the money for specific family needs. In fact, many individuals find themselves financially worse off than they were before they received the inheritance! For instance, if you use your new money for a down payment on an extravagant home that you otherwise could not afford, you might start living a lifestyle that exceeds the realities of your income. Or, maybe you remodeled your current home, took an expensive trip, and bought a new sports car. In this case, you might suddenly discover that only a fraction of your original inheritance is left, leaving you wondering where it all went.
If you are anticipating an inheritance, the best strategy is to talk to your family members and financial planners. Although discussing the inheritance and creating an estate plan with the person who will leave you the money might seem inappropriate at first, it could actually soothe your concerns about the inheritance. It also provides the donor with a chance to discuss their hopes and dreams for the money once it lands in your hands. By establishing an estate plan and an open discussion, you might even decide to begin the transfer of wealth through the establishment of trust funds and lifetime gifts.
By creating a dialogue with those involved and by educating yourself about the estate planning process, you can eliminate the difficulty of rational financial planning at a time when you would rather spend precious moments with your loved ones.