Tag Archives | inheritance

What to do With an Inheritance

Last-Will-and-TestamentWhat to do With an Inheritance

Receipt of an inheritance represents a time of sadness which, depending on the closeness of the benefactor, can also be tinged with an element of joy. Hopefully the joy results not from the loss of the benefactor, but from the possibilities created by a sudden influx of cash.

It is common for beneficiaries to be close to retirement when an inheritance is received. For those who have spent a lifetime struggling to save or who have fallen on hard times, the temptation of spending a large lump sum that would otherwise not have been attainable is hard to resist. Suddenly, dreams can come true.

The last few years before retirement are the most significant ones from a financial point of view. It is during this time that the scene is set for the thirty or so retirement years to follow. Receiving an inheritance presents a dilemma. Should it be spent on making dreams come true, or should it be conserved for retirement? A safe strategy would be to calculate the lump sum required to provide sufficient income for retirement and set that amount aside in a long term investment portfolio. Any surplus cash or future savings can then be spent, safe in the knowledge that retirement is taken care of. A riskier strategy would be to spend part of the lump sum with the aim of replacing the spent funds by saving future income to provide for retirement. The problem with this approach is that late in your working life there are significantly greater risks of loss of income through health problems or redundancy.  Combine this with a poor track record of saving and the likelihood that spent funds will be replaced is low. Neither approach is right or wrong; it is simply a matter of understanding the consequences.

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Fighting Over the Family Fortune

swordfightFighting Over the Family Fortune

Sibling rivalry is common, but add to the mix the death of parents and a sizeable estate and you have a recipe for the destruction of family relationships. The baby boomer generation is very susceptible to this problem. Typically, their parents grew up in the Depression era and were good savers, unlike the baby boomers. Those baby boomers who have managed to save have seen their nest eggs eroded through financial market crises, redundancy and divorce. Little wonder then, that many rely on receiving an inheritance to fund their retirement. When there is a large sum at stake, family love can turn to family hatred.

Parents often don’t think through the effect of the provisions of their will on surviving children. A parent may feel inclined to favour one child over another in the will for a variety of reasons. The favoured child may be one who has cared for the parent in their final years, or who is more in need of financial assistance or more responsible with money. Further complications can arise when children from two different relationships are not treated equitably.

Avoiding conflict requires careful thinking, planning and communication. Parents are often secretive about the contents of their will and so the contents come as a surprise. This can be overcome by explanations given to the children while the parents are still alive, or by parents documenting the reasons for how the property (money and possessions) is to be divided. The choice of the executor of a will is critical and ideally children need to be told who the executor is and why they have been chosen. Children can help by ensuring they make their own financial plans so they are not in the awful position of waiting for their parents to die so they can retire.

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Suddenly Rich

Suddenly Rich

Dreams sometimes come true! Occasionally some of us suddenly receive a large sum of money. For the luckiest, it might be a lottery win, for some it might be an inheritance and for others the sale of a business or property. Suddenly being rich is exciting, but for most people it is also frightening.

Fear comes from lack of knowledge about the options that are available for spending or investing, not knowing how to choose the best option, worry about making the wrong choice, not knowing who to trust for advice, and worry about the risks of losing the money.

What should you do if you are in the enviable position of suddenly having a lot of money? The first thing you should do is pay off any debts. If there are still funds left over, set aside a small amount to treat yourself and celebrate your good fortune. The remainder should be set aside safely in the bank until you decide what to do with it.

The circumstances, good or bad, that lead to suddenly having a lot of money are usually full of mixed emotions so it is best not to make big decisions for a few months. Find someone you can trust who can advise you and act as a sounding board. Next, spend some time thinking; not about what you could do with the money, but about what the important things are to you in life. Money is what enables us to get what we want out of life, whether that is helping our children, helping the community, having interesting and enjoyable experiences, living in a comfortable environment, or enjoying our retirement. Once you have established what is important about money to you, allocate part of your fortune to each of the items on your list.

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