What to do with sudden wealth
(MoneyWatch) Inheriting money, particularly life-changing sums of wealth, often has financial and emotional repercussions you didn't see coming. The death of a loved one, whether a parent, close relative or dear friend, comes at a deep personal cost. Such loss may affect rational financial judgment and decision making and create strong feelings of guilt or denial.
Anger may arise when someone doesn't receive as much as they thought they would or deserved. This can result when there is an unequal distribution among multiple heirs, including siblings. Heirs sometimes measure the benefactor's love by the size of the inheritance.
People lacking financial experience or competence -- commonly those who inherit at a young age or have never learned good money management practices -- may find themselves confused or even paralyzed by what to do on the sudden receipt of a large sum of money. If the deceased handled all the family finances, the surviving spouse may be unsure as to how to proceed. So she does nothing. Or he does the opposite, spending it immediately and recklessly, only to regret it later when he experiences financial hardship.
Spouses may disagree about what to do with the inheritance, especially if their attitudes toward money conflict. The heir may feel it is "his" or "her" money and not want share it with the other spouse; or the other spouse may feel inadequate because their partner has brought disproportionate wealth into the household.
Many of these challenges can be minimized or even eliminated if the benefactor undertakes long-range planning before death. This may involve setting up trusts to control inheritances, gifting some money while still alive and explaining to heirs why and what they can expect to receive.
But what if you inherit money from the benefactor and haven't planned or prepared for it?
First, just as you would if you'd won a lottery, take a deep breath and do nothing for six months. If the money arrives in the form of a check, deposit it immediately into an FDIC-insured bank money market account. If you receive shares of stock or a portfolio of stocks and bonds, don't liquidate these inherited investments right away. Instead, get an investment advisor to review your holdings and sell only those at serious risk of losing significant value. If you receive shares in a business or farm, continue to operate it and seek help from a competent and experienced manager.
Following this advice allows you to buy time, consider all options and gather information so you can make informed and sound decisions. The actions that follow may help you in that process.
Make a spending list. You'll probably be surprised at how quickly the items on your list can diminish your inheritance. So pare it down to realistic priorities.
Consider doing something with this money that is in sync with your values. Perhaps you'll want to donate a portion of it or put aside some for your children's college education.
Get your own planning in order: Update your will, include trust provisions, and make sure you have adequate life insurance.
Finally, seek professional advice. A qualified attorney, accountant or financial advisor can help you not only make sound investment decisions (heirs are frequently targets for investment schemes and scams) but, more importantly, help you sort through the emotional and financial issues that accompany inheritance.
