We are currently in the midst of one of the largest transfers of wealth from one generation to the next that our country has ever witnessed. That’s because as parents of baby boomers start to pass, the legacies they are leaving behind in the form of inheritances are in the trillions of dollars.
Last year alone in our financial planning practice, one out of three new clients contacted our practice as a result of receiving an inheritance. And in many cases, the inheritance they received was a game changer - meaning the amount received was large enough to create financial independence.
At the same time, many of these new clients were totally unprepared emotionally and spiritually for the sudden wealth they were now dealing with. When you go from living and adjusting to a relatively tight family budget for most of your adult life, and suddenly your net worth increases, perhaps even high enough to never have to work another day in your life; it will change your life in unexpected ways.
Based on my observations over ten years of working with clients from all walks of life, some that have received small inheritances and some that have received very large inheritances, below are my 5 tips to help you prepare for this solemn and potentially transformational moment in life.
1) Get the Facts
As part of the process of developing a comprehensive financial plan, I ask all clients if they are aware of their parents’ estate plans and if yes, approximately how much their inheritance will be. If you never broached this subject with your parents, that’s understandable. But if you’re a boomer, it’s better to know the facts, as delicate a topic to discuss as it is, instead of guessing.
If you’re looking for an appropriate time or opportunity to broach this subject, informing your parent’s that you’ve hired a holistic financial planner and as part of the planning process you’re seeking a rough ball park figure of how they plan to distribute their estate is one option to consider. Most clients tell me how surprised they were to discover their parents were not only willing but eager to discuss this emotionally charged subject with them.
2) Beware of the Internal Saboteur
There are two common patterns that I’ve observed working with clients that have received large inheritances. One, perhaps the most familiar, is putting your entire inheritance into a savings or money market account earning 0.5%. That’s usually caused by a lack of self-confidence around money. The story you are telling yourself is you’re not capable of handling this. Please realize that’s the saboteur talking. Change the story in your head and tell yourself - yes you can!
The second, although less prevalent, is doing everything possible to sabotage yourself and eventually lose the money through risky or reckless investment choices. The reasons for this sabotage behavior are complex and much has to do with an unhealthy relationship with money to begin with.
Like a magnet strongly pulling you to the darkness, your unconscious money behavior manifests itself in ways that are very self-destructive. It’s crucial to know and understand your money patterns and habits before your inheritance is received. If you know for sure your inheritance will be large enough to change your life completely, lay the groundwork and inner foundation by seeking out a therapist or financial coach that can help you stay conscious when the time comes.
3) Make No Major Decisions the First Year
For many people receiving an inheritance, especially a large inheritance, it’s common to want to make a big and bold move with the money. That could take the shape of a new home, a second home, starting a new and costly business, etc.
The guidance that my clients find the most difficult to follow is when I ask them not to do anything major or bold the first year except invest their inheritance wisely. To make any major life decision in the first year of losing your parent is fraught with danger.
That’s because the urge you feel to do something big with the money is usually an emotional reaction to the pain you feel from the loss. To let your emotions guide major financial decisions in this first year is a risky proposition at best.
4) Talk with Your Partner about Your Intentions
Once you discover more information about your future inheritance, remember to include your partner and bring them into the conversation on how you would like to use this money. Yes it’s your inheritance and you have the right to do whatever you please with the money. That said, shutting your partner out of any discussion, which happens quite frequently, will lead to conflict down the road.
Better to think, dream and imagine the possibilities together, find common ground if there is disagreement and work together, mapping out your new life plan as a team instead of flying solo.
5) Feeling Grateful
When I ask my clients how they feel upon receiving their inheritance, the one word most often used to describe their feelings is gratitude. They feel extremely grateful for their inheritance, large or small, and they stay and nurture that feeling for a long time.
It’s easy to get tripped up emotionally when receiving an inheritance as there are so many conflicting thoughts and feelings running through your mind and body that often it’s difficult to remain grounded and centered. If you had a difficult relationship with your parents, then your emotional challenges are even greater once they do pass and you receive your inheritance.
Whatever your spiritual practice is, practicing gratitude is the way forward. It will help soothe the pain of your loss and is a powerful way to honor the memory of your parents.
Photo credit Pat Chiappa