When a loved one dies and leaves you an inheritance, it often comes with a cache of guilt.
“Most people are not prepared for the emotions that come with an inheritance,” said Stephen Wright, a financial planner with The Enrichment Group in Miami. “It’s different than winning the lottery. When you win the lottery, you’re excited. With an inheritance, it’s bittersweet. You feel guilty for benefiting from the death of a loved one.”
The biggest mistake people make when they inherit a chunk of money is not thinking it through, said Meg Green, a certified financial planner and CEO of Meg Green and Associates in Miami. “People who don’t have means often squander the money on things they have been dying to have all these years, and then it’s gone.”
That kind of thinking wastes an opportunity. “Sometimes an inheritance is the IRA that never got funded; it’s the retirement fund that never got saved,” said Green, who writes the Miami Herald’s Money Dilemmas column.
An inheritance can move a struggling worker from just-getting-by to financial security, Green said. Instead of funding a splurge like a Porsche, that money can better be used to pay down the mortgage or kids’ college, creating long-term security.
One challenge: Recipients may feel the need to do things in a way that their benefactor would have approved, especially in the case of a parent, Wright said.
“You may feel like you have to continue investing the way they did, even if that may not be the best thing for you,” Wright said. “There’s a reason your loved one wanted you to have the money. They gave it to you because they loved you, and because they wanted you to make your life better. Give yourself permission to do that.”
When an inheritance comes your way, financial experts offer this advice:Avoid hasty decisions: Take
“It’s not as simple as opening up a Schwab account and starting to buy stocks,” she said. “Look for an advisor, but not an advisor who is licking their chops.” Sometimes those who receive an inheritance get rushed into listening to family members or well-meaning friends.
“Three to five years later they say ‘Why did I do that?’” Green said. “For some people, it’s the first time they’ve had money, and they’re vulnerable to the wolves in sheep’s clothing.”
If it’s a substantial inheritance, assemble a team: an attorney, a certified public accountant and financial advisor, to minimize your tax burden and plan for the long term, she said.Secure your retirement Don’t pay off debt without changing habits: Keep the money in your name: Build a legacy Handle IRAs carefully Increase your liability insurance, if needed Up your standard of living gradually Don’t quit your job right away
“An inheritance may make you feel wealthy for a short period of time, but wealthy people don’t want to sit around and do nothing….How many rounds of golf can you play?” she said. “Think first. Don’t focus so much on the money. Don’t make it your whole life.”Don’t count your chickens: