INSTANT WEALTH IS NOT ALL IT’S CRACKED UP TO BE

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, October 2006

Okay, that doesn’t necessarily mean you would turn it down—but suddenly coming into a large sum of money from inheritance, law suit award, lottery winnings, business sale, retirement or other life-changing sums of wealth can spark financial and emotional reactions and problems you may never have thought about or are prepared for.

What are some of the sources of potential difficulties and how do you address them?

Grief. Inherited money, while sometimes gifted while the benefactor is alive, usually comes at a deep personal cost—the death of a loved one such as a parent, a close relative or a dear friend. This personal pain often clouds one’s financial and emotional judgment. For example, some inheritors deny use of their inheritance as a way of denying the person’s death.

Guilt. Experts who work with inherited wealth say this a powerful and far more common emotion among heirs than people realize, and is often a cause for either doing nothing with the inheritance or even disclaiming it. For one thing, heirs ask themselves, what did I do to earn this money other than be a lottery winner in the gene pool?

Over-indulgence. Statistics show that those who are involved in “sudden money syndrome” spend the entire sum in a little over two years. The desire to buy and spend on anything and everything becomes overwhelming and before you know it, it’s gone.

Anger. The obvious anger can arise when someone doesn’t receive as much as they thought they would or that they thought they deserved, as in the case of lawsuits and inheritances. They may feel there is an unequal or inequitable distribution among multiple heirs, including siblings. Heirs sometimes measure the benefactor’s love by the size of the inheritance. Ironically, some heirs get angry because they received more than they thought they would, thus questioning why they had to live a financially “deprived” life all these years, and why they had to wait for it. People who are not financially competent—commonly people who inherit at a young age or win the lottery- that have never learned good money management practices may be simply paralyzed by what to do with all this money. Someone else may have handled all the family finances, and the recipient doesn’t know what to do. So they do nothing. Or they do the opposite—spend it immediately and recklessly, resulting later in regret or financial hardship.

Conflict with spouse. Spouses can disagree over what to do with the inheritance, especially if they have conflicting money personalities. They may feel it is “his” or “her” money and not want share it with THEIR spouse; or the non-recipient may feel inadequate because their partner has brought disproportionate wealth into the household.

Many of these challenges can be minimized or even eliminated if a benefactor (such as a parent or grand parent) does long-range planning before actually giving funds. They may set up trusts to control inheritances, plan a reasonable schedule of “presents” to others setting up the future, gifting some money while still alive, and explaining to heirs why and what they might expect to receive.

But what if you inherit money without adequate preparation?

First, just as you would if you’d won a lottery, take a deep breath and don’t do anything for a while (say six months). Notify your Certified Financial Planner ™ (if you presently have a relationship) of the upcoming wealth transfer, or start interviewing potential planners. Don’t sell off inherited stock right away until you consult with your accountant, and keep the business running if necessary. Take time with your trusted advisors and family to make sound decisions.Make a spending list. Let your mind roam freely at first. You’ll probably soon realize how quickly your list eats up the incoming money. At that point, begin to pare the list down to realistic priorities. Think about what you can do with this money that matches your own values. Careful planning can make this time in your life less stressful, and prepare you for a new stage in your life.

Neal A. Deutsch is a Certified Financial Planner^™, Registered Securities Principal and President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com Feel free to visit his website at www.chestnutinvestment.com