By Laura Webb, founder and CEO of Webb Investment Services, Inc
The number of people who receive an Inheritance in the U.S. may surprise you. According to a study by the Federal Reserve Bank of Cleveland, only 8% of Americans get an inheritance of any kind — and less than 2% of those will get $100,000 or more.
To Everything, There is a Season
A time to reap, a time to sow, a time to be born, a time to die.
People express grief or their profound sense of loss in different ways. There is no one accepted way to grieve the loss of a spouse or a loved one.
A recently widowed woman responds to the loss of her husband of 70 years by immediately disposing of his clothing and other effects and doing so frantically, as if in a hurry to wash away all physical traces of his existence. Some parents who lose a young child preserve his or her memory by keeping the child’s bedroom as it was, making it like a shrine.
Trained counselors in the field of grief therapy collectively recommend to let grief run its course through the help of a support team before moving on to other important life decisions.
The inheritance challenge then becomes how to form a plan that will lead to no future regrets or remorse over how the money was spent.
Most financial advisory experts suggest that beneficiaries of an inheritance call a time-out and wait several weeks or months to consider where spending and investing an inheritance will bring the most benefit.
One commonly endorsed caution is to resist the temptation to immediately start spending money carelessly at the cost of sacrificing longer-term goals. Know that your inheritance, when it arrives, is typically not going anywhere until you decide to put it to work, or in motion for you. Take the time to develop a plan in concert with a trusted financial advisor and even an accountant.
In the meantime, beneficiaries are usually best served by placing their money in a safe, interest-bearing savings account that can be accessed easily. We’ve all heard stories about how quickly wealth can be squandered by recklessly spending for the short-term satisfaction of unnecessary material possessions, such as cars, boats or other luxuries.
Pause and Reflect
Ask yourself these simple questions:
- What are your broader financial goals?
With an inheritance, especially from someone who thought highly enough of you to include you as a beneficiary, now would be a good time to consider setting aside a portion of these funds to invest for the long-term.
- Are you prepared to manage an emergency expense?
One unfortunate consequence of the wealth gap in the U.S. and elsewhere is that a surprising number of people are poorly prepared to manage an unexpected expense such as a home or car repair. In 2020, about 61% of American households said they would pay for an unexpected $400 expense with cash, savings or a credit card, the Federal Reserve found. About 12% said they would not be able to cover the expense at all. That’s why it’s important to maintain an emergency fund when the inevitable sudden expense occurs. Experts advise to use a portion of an inheritance, such as three to six months’ salary, to mitigate such an obligation that’s just waiting to occur.
- Do you have obligations to repay any significant debts?
High-interest debt especially is an obstacle to be eliminated as soon as possible. Addressing outstanding debts when you have the opportunity carries the benefits of relieving unhealthy financial stress. An inheritance can be a useful tool to address monthly obligations that hinder progress towards realizing your longer-term financial goals.
- Are you set up for a successful and comfortable retirement?
Typically, people in their thirties, forties and even fifties barely give retirement a thought until they realize they waited too long to prepare for it. You generally need a retirement plan well in advance of the inevitable end of your wage-earning years to avoid the pressure of having to work longer than you wanted. An inheritance could open up the opportunity to direct money to investments that work to prepare you for a comfortable retirement
- Can you afford to splurge a little?
It’s only human nature to want to treat yourself to a small indulgence when you experience the windfall of an inheritance. After satisfying other more pressing matters, a wonderful way to honor the loved one who left you an inheritance is by fulfilling a dream in their honor. Just bear in mind the adage of moderation in all things.
Build Your Dream Team of Professional Advisors
I advise my current and potential clients who have received or expect an inheritance in the future to build a support team that includes a Certified Financial Planner™ professional in addition to a certified public accountant. The sooner one assembles such a team, the sooner each advisor can get to know your unique situation and how to tailor strategies for responsible money management.
The more you know about how to manage sudden wealth, the better prepared and comfortable you’ll be with your team and the safety of your money.
Finally, adopt a philosophy of patience with your inheritance. This means taking a measured and well-informed approach to maximize its value for the higher goals of securing the future for yourself and your children.
Normally, the greater the generosity of a benefactor at inheritance time, the wider the range of investment opportunities you have. With the right plan and guidance in place you’ll greatly reduce the prospect of future regrets over how you should have used a tremendous gift.
Laura Webb is the founder and president of Webb Investment Services, Inc., based in Asheville, NC. She is a CFP® professional and the creator of the Her Two Cents podcasts, which focuses on helping women normalize the conversation around money. Her team focuses its efforts on helping women secure their financial futures. For the rest of the story, please visit the Webb Investment Services, Inc. website or email her at firstname.lastname@example.org.
Webb Investment Services, Inc is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. 82 Patton Ave, Suite 610, Asheville, NC 28801. 828-252-5132.
Any opinions are those of Laura Webb and not necessarily those of Raymond James.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Individual investor’s will vary. Past performance does not guarantee future results. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Certified Financial Planners Board of Standards Inc. owns the certification marks CFP® , Certified Financial Planner™, CFP® (with plaque design), CFP® (with plaque design) and CFP® (with flame design) in the U.S. which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
 How Many Americans Receive an Inheritance, WiseGeek
 5 Questions to Ask Yourself Before Spending an Inheritance, Blisk Financial Group