Marc A. Hebert's Money Sense: How to manage new wealth gained from an inheritanceBy MARC A. HEBERT
March 02. 2018 6:38PM
Many people consider a large inheritance a blessing; however, being suddenly wealthy can bring some stress along with the money. You will need to review your new financial situation and manage assets that you never had before.
The first step in managing your new wealth is to determine just how wealthy you are. How much have you received? Do you have immediate access to and control over the assets? Assets could be held in trust for you with provisions the trustee will have to abide by. What types of assets have you inherited? Assets might take the form of cash, property or stocks, for example. Read every document associated with your new wealth carefully.
Assemble your own dream team. You will probably need an accountant, certified financial planner (CFP) and some legal help. Friends may provide you with referrals. Vet all of these individuals by understanding their professional backgrounds. What are their credentials and what do they mean? Can you talk with some of their clients about their experiences with the professional? The state bar association, board of accountancy, and CFP board can provide disciplinary information.
Develop your own comprehensive financial and life plan. You need to decide how much income you would like to have. Perhaps you would like to give to charity. It is important to determine your goals and how your money will fit into the picture.
We mentioned the word trust, but how does a trust apply to your situation? With a trust, you might not have total control over your inheritance. The trustee is in charge of the trust and will manage the assets for you. The trustee is the person named by the individual who set up the trust to do this. The trust document dictates how and when the funds can be paid to you and what the trustee can and cannot do.
If your assets are in trust, it is important for you, as a trust beneficiary, to know about the trust. You will need to understand the contents in order to protect your interests. To do so, read the trust document carefully. If you need help understanding the provisions seek the advice of an attorney or CFP. Trust language can be tricky.
Once you understand how the trust works, you will need to decide how much income you will receive from it. You will need to obtain statements from the trustee and review how much income each asset might provide. Review the investment strategy the trustee is using. Does the strategy meet your needs? Is this income going to be enough? Once again, you might need the help of an accountant or other professional to determine this information. In other words, maybe you shouldn't quit your job quite yet.
Perhaps you are in a different situation in which all the money will be disbursed directly to you. If it is a large sum, monitor your spending and don't rush to quit your job, move or give assets to family members. In fact, be careful of newfound friends and estranged family members who suddenly appear along with your money. It is best to keep your newfound wealth as private a matter as possible.
Make sure to review your insurance. You might find yourself exposed to frivolous lawsuits and threats. Review your coverage with your insurance agent.
As can be seen, inheriting wealth can bring its own set of challenges. As we have mentioned a few times in this article, seek the help of competent, trustworthy advisers before doing anything with your newfound wealth.
Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at firstname.lastname@example.org. Your question and his response might appear in a future column.