By J.D. White, CFP
Imagine: You're living paycheck-to-paycheck, supporting a family, and trying to balance all of the financial goals that you have but feel like you are falling short. Then, without warning, everything changes.
The stories may vary, but the outcomes can have similar impacts. For instance, someone in the family passes away and a massive amount of assets move to the next generations. Suddenly, people are jolted into the affluent status and are not prepared for how to deal with it and the steps that should be taken. Here is some guidance on what steps should be taken in the case of dramatic financial changes.
I always attempt to put myself in the shoes of my clients and the situations that they are going through. The first phase of receiving an inheritance is probably not as obvious when we are talking about money – grieving, especially if the person that passed away is your last remaining parent. You are suddenly thrust into a world of chaos where a thousand things are happening at once; you have a funeral to deal with, assets that need to be dealt with, life insurance claims, real estate property, other siblings and relatives—the list goes on. Meanwhile, you still need the time to properly digest your own feelings and be able to move on in your own way.
The first step is to BREATHE.
Ask for help from your family members as often as you can. Most things will take some time as it relates to settling assets and policies. Yes, some sort of service probably needs to be arranged. I think that the services can be a nice way of remembering the person that has passed. Take the time to put thought and love into the process. Get through that part before you tackle any of the other checklist items that are looming. I understand that we live in a fast-paced society. I also understand that when there are dollar signs involved, people can start to act a little crazy. The smartest thing to do is to slow down and make sure that everything is handled properly and with as clear a mind as possible.
The next step is to start compiling a list of assets. If you are like me, you would make a nice spreadsheet that shows every asset, its value, and where it is located. However, if you are a sticky note person and that’s how you roll – then have at it. Every once in a while, a person leaves behind a nice list of assets for their heirs. Most of the time, the assets are scattered everywhere and never mentioned in conversations prior to passing.
You will need to start collecting statements as they come in the mail and try to get access to email for electronic communications, if possible. Start with the likely pile of mail sitting in the house next to the bowl where the keys go. Open each statement and save it. Make sure you check the dates on those. I have received statements from clients that were well over 5 years old and the values varied significantly.
While you are in the process of gathering the statements and compiling information, you should also call the estate attorney (if there is one) that was responsible for any wills or trusts that were created. If there are trusts, you will need to figure out who the executor is, as they will be the primary contact for the assets and getting them squared away with all of the beneficiaries.
If there was not an estate attorney involved, then you will want to find one. Personally, I have a short list of estate attorneys that I know and trust. I am happy to provide contact information to my clients and am willing to open the dialogue with the attorney directly. If you have family members that could potentially contest the right to the money, you will want to find an estate attorney that practices probate as well. If you are going to have a battle in court, you need someone that has your back.
Find a wealth manager who can help you build a plan for what to do with the assets that you are going to acquire. If you know and respect the wealth manager that helped your family member, you can always interview them as part of the process. I would recommend interviewing a few different professionals. I claim to be an “inheritance specialist” but there are not many of us that do.
When interviewing the wealth manager ask about fees and the types of investments they work with. You should also connect with the person on a personal level. If you don’t trust them right away, then you never will. There should be a strategy for getting out of any investments that were inherited and a plan for getting any cash positions invested according to your long and short-term objectives. Your wealth manager should also have a general understanding of the tax consequences of liquidating any of the assets, but ultimately you will need another professional to help with tax implications.
Find a CPA that has experience with inheritance money. Again, I provide my clients with contacts and am happy to open a dialogue.
The best thing that can happen for your fresh, new money is to have a team around you to protect it. Yes, they will eat into the money a small bit, but will ultimately save you time, money, and headache in the process. The reason that I use professionals that I know and trust with my clients (if possible) is because I already have an established relationship with them. I have carefully vetted the professionals and know that they will work with me and each other to take care of our clients. That’s ideal, but not always obtainable. If you can find the professionals that you trust, then you will be in great shape.
Now you have built a sweet money team around you, have properly mourned, and know the amount of major money you are going to be receiving. Now what? It’s time to buy a Lamborghini! I am kidding – DO NOT BUY A LAMBORGHINI… unless your plan allows for it and does not put you in a bad financial position. In which case, call me. I’m free next Tuesday for lunch.
In all seriousness, most people that receive inheritance money blow through it quickly. You need a plan for your money and need to have an idea of how you would like to live moving forward. I’m going to endorse myself and my profession again here and say that you should be building a plan with your wealth manager. They can help ensure that you are living within your means and pursuing your goals while being smart about the decisions you make. At the end of the day, it’s now your money. You can choose to be smart with it and not go back to the struggle. Channel your inner Warren Buffet.
When you have a dramatic change in your net worth, be it inheritance, lottery, divorce, sale of a business, or anything else – you can follow some of the same guidelines. Find professionals that specialize in what you are going through. Follow your gut on who you choose and interview multiple professionals. Be smart with your money and for the love… if you buy a Ferrari, PLEASE don’t buy a yellow one!
About the Author: J.D. White, CFP®
J.D. White, CFP®, CRPC®, AWMA®, AAMS® is president and wealth manager of White Hawk Wealth Management in Broomfield, Colorado. They pride themselves on their dedication to serving others through financial planning and investment advice. Their mission is to revolutionize the way that people view wealth management and the way that the service is offered.
Content in this material is for general information only and not intended to provide specific tax, legal, investment advice or recommendations for any individual. Your results will vary.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Western Wealth Management LLC, a Registered Investment Advisor. New West Advisors and Wester Wealth Management LLC are separate entities from LPL Financial.
Editor’s note: Visit the National Association of Estate Planners & Councils’ website and the American Academy of Estate Planning Attorneys site to find an accredited estate planner in your area. To find a CPA, visit the AICPA website.