My Ship Came In – What Do I Do Now?

We’ve all probably daydreamed about it at one time or another: you get a certified letter from a law firm informing you that your distant (and very wealthy) relative has passed on and has left you a sizeable fortune in her will. Suddenly, you’re in possession of a real financial windfall. What should you do?

Once you’ve finished with the jokes about “paying off debt as far as it will go” and the reality begins to settle in, you begin to realize that properly handling a large inheritance is a big responsibility. Sadly, it’s one that too many people don’t understand soon enough. According to some estimates, about a third of those who win significant amounts in lotteries, for example,  eventually end up in bankruptcy. Clearly, “winging it” isn’t a viable strategy for conserving sudden wealth.

Fortunately, there are some steps you can take that can greatly increase your ability to exercise good stewardship of your newfound wealth and build a strong foundation for the future financial wellbeing of yourself, your family, and perhaps even important causes that you care about.

1. Don’t get in a hurry. This is maybe the most important advice of all. The proverb “haste makes waste” certainly applies here. When you’ve been creditably informed that you are receiving a large inheritance, the first thing you should do is take the time to be certain that you understand the basics: what form the inheritance will take (it makes a big difference whether you’re inheriting cash, listed securities, real estate, or assets in some other form); what terms are attached (Is it in the form of a trust, which may govern the timing and amount of your receipt of the assets?); and, of course, the current fair market value. Avoid making any quick decisions, especially around spending, paying off debt, or even investing. Remember that the main advantage of having money is that it gives you options; take lots of time to carefully consider as many options as you can before taking any action.

2. Recruit your team. If you suddenly learned that you were receiving the responsibility of running a large business that you knew little about, what would you do? Most likely, you’d try to surround yourself with knowledgeable advisors who could help you keep the enterprise running smoothly and profitably. Well, in effect, handling a large inheritance properly is very much like running a business; you must make decisions that will not only preserve the assets but also encourage them to grow. With very few exceptions, those in this position should avail themselves of the best and most trustworthy experts they can find, including a CPA, a qualified estate planning attorney, and a professional, fiduciary financial advisor or wealth manager. You need a team that can combine talents to give you solid, coordinated advice about taxation, investment management, estate planning considerations, and other vital financial matters. Having the right team in place, in fact, may be your best defense against making hasty decisions that aren’t in your long-term best interest.

3. Make a plan. Even if it eventually requires amendment and revision, a plan is essential as you begin managing your inheritance. With the assistance of your team, your plan should take into consideration your current situation: your debt, your assets, and your goals for the future (whether those are focused on higher education for children, starting a new business, retirement, or all of the above). Once you know where you are right now, you’ll have a better way of determining the most advantageous means to deploy your newfound wealth. Depending on the specifics of your situation, your first priority may be to pay down high-interest debt; or to set up an education fund; or to make a necessary purchase that will improve your life or provide new opportunities. You may even decide to make a donation to a valued cause or establish your own charitable foundation. But it all starts with understanding where you are and strategically deciding the best way your inheritance can help you get where you want to go.

4. Continue to educate yourself. Part of your new responsibility as the “CEO” of your new “enterprise” is to learn as much as you can about finance, investment, taxation, estate planning, and other important financial topics. Understand: your goal is not to become a lawyer, a CPA, or a finance guru, but you should aim to become an informed consumer of the advice and guidance you receive from these professionals. In other words, you don’t have to go back to school and get any advanced degrees, but you should make it a habit to keep updated on financial and economic news, changes in the tax code, and other current developments that could affect your financial strategy. Your professional advisors should also help you stay abreast of these topics, especially as they directly impact your individual situation. After all, the more you know, the more confidently you’ll be able to move forward with your new responsibilities. Knowledge helps to reduce uncertainty, which in turn leads to lower stress and more enjoyment of the new opportunities your inheritance can provide.

At Aspen Wealth Management, our goal is to provide our clients with the guidance they need to make the most of the opportunities that come their way. To learn more, why not subscribe to our free Alexa Skill, “Purposeful Planning”? It’s a great way to educate yourself on the financial topics that matter most to you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.