Coming into New Wealth

Friday, September 24th, 2010 by Charles Mayfield, CFP®


Our population is aging, the baby boomers are retiring and the only certainties still seem to be death and taxes.  We have seen quite a few boomer clients who have lost their parents in 2010 and, as such, have come into new wealth by way of an inheritance.  A financial windfall is something that family members can, and should, be prepared for.  Here are a few things to consider to ensure that your loved ones financial legacies are carried on for years to come:

Plan Ahead:  There is really no way to plan for winning the lottery (other than buying a ticket).  However, if you expect to inherit money from family, now is the time to plan for the inevitable.  A candid conversation about how assets are titled, what the will states, and who ends up with what, can save a lot of headache down the road.  With the future of estate taxes still very much in the air, taking necessary steps to reduce tax liabilities and increase transparency among beneficiaries can go a long way in saving time and money…and to avoiding the common beneficiary family feud.

Avoid the urge to spend immediately:  Before you go buy that toy you have always wanted, prudence dictates that a meeting with a financial advisor would likely bear fruit.  Taxes, probate and unforeseen debt are just a few of the things that can whittle down your windfall.  The total cost of coming into money may not be realized for months (in some cases a year or two). So the dollar figure that you end up with will likely be a fraction of the initial figures presented in the will.

Impact to Cash Flow:  This new money will surely make an impact on your calculations and expectations when it comes to the amount of fixed income that you should be saving to plan for your retirement.  We generally encourage clients to save as much as possible.  However, if your coffers are full, you may be able to forgo additional savings and enjoy more money in your pocket now.

Rethink Everything:  It sounds trite, but coming into wealth needs to be met with pragmatism and careful planning.  You may feel that this newfound wealth gives you the ability to forgo any formal steps to developing a strategy for this money.  This couldn’t be further from the truth.  Working with an unbiased, third-party, trusted financial expert can help to ensure that you are making rational decisions that are in your best interest, and those of your heirs.

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