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Will You (or Your Kids) Squander or Save Inheritance?

Will You (or Your Kids) Squander or Save Inheritance?

June 05, 2024

I meet with many clients who receive an inheritance, and I am always intrigued by the different reactions. According to InvestmentNews, on average, adults who expect to receive an inheritance anticipate receiving $320,000. Money is relative – $320,000 is a lot of money to some people, not life-changing for others. For many, such a windfall could leave them uncertain how to use it. Statistically one out of every three people who suddenly receive an influx of cash, spend all of their inheritance.

What happens when you grant an inheritance?  What will your children or heirs do?  

In my experience, there are four different types of heirs:

1. The Inheritance Squanderer. This is the person who spends all of his or her inheritance. I’ve known people who inherited a house and mortgaged it so that they could live the high life for a while, with fine dining and vacations. In the end, they were left with nothing, they couldn’t afford the house, or even the taxes on the home, and were foreclosed on.

 Source: iStock/ShutterOK

2. The Halfway Heir. Sometimes we see clients who spend half and save half. Maybe they have some debts they need to pay or have college bills to pay. Perhaps they have renovations on their home they have been meaning to do. They do not want to spend all of their inheritance but are disciplined enough to save at least half. 

3. The Interest Aristocrat. This is the person who lives off the interest of their inheritance. Maybe it is a vacation once a year or having a little extra money to have a better lifestyle. The principal will be there for later, either their retirement or for their heirs.

      Source: iStock/Gorlov

4. The Legacy Guardian. This person does not need the inheritance, so instead of spending it, they save it for retirement or their heirs. 

Money can be a crutch to the emotional rollercoaster we experience when someone dies. Pause and consider planning on what percentage you will spend as “fun money,” what percentage will be reinvested into assets – your house, for example – and what percentage will be saved either for your retirement or a legacy left to your children and grandchildren.

Here are some steps to follow to use an inheritance responsibly:

1. Pause and Process: Grieving is natural. Take time before making financial decisions.

2. Seek Advice: Consult with a CERTIFIED FINANCIAL PLANNERTM Professional and Certified Public Accountant (CPA) for guidance on managing your newfound wealth wisely.

3. Clear Some Debts: Prioritize paying off high-interest debts to ease financial burdens.

4. Save and Invest: Allocate funds for emergencies, retirement, and investments for long-term growth.

5. Give Back: Honor your loved one’s legacy by donating to causes they cared about or saving for their grandchildren.

6. Enjoy Responsibly: Treat yourself, but budget wisely to avoid overspending.

Overall, managing an inheritance wisely requires thoughtful planning and consideration of your financial goals and priorities. With careful planning and the right guidance, you can make the most of your inheritance and secure your financial future. At Impel Wealth we are here to help you with these decisions, walk you through your financial goals, and keep life “Moving Forward.” 

© 2024 Irene Zurowski

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.

This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

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