Planning how to improve your life with your inheritance

Family, Probate, Trust Administration

Over the years, I’ve seen lots of people regret what they did with their inheritance. Regrets over how their inheritance was spent or how it was invested or how it was taxed or who gained access to it. Regrets over who will inherit it. And regrets about what happened to their inheritance in a divorce.

People tend to do something that they “wanted to do” with their inheritance without first  identifying all of their  “wants” or without prioritizing all of their “wants.”

So my advice to clients is to create an “inheritance plan” of how to improve your life with your  inheritance, following these four steps:

Step 1: IDENTIFY ALL OF YOUR WANTS: Without being critical or judgmental of yourself, write down all the things that you want do that involves money. Dream. Think of your present and your future. Include what wealth you want to leave on your death for others. Identify any health, family, or financial necessities (as opposed to wants or desires). Try to fill up at least one page. For example, consider:

  • Your health wants or needs
  • Paying off debt
  • Your education
  • Your career
  • Your home or second home
  • An emergency fund
  • Helping your children (or grandchildren or others) with college
  • Helping your children (or others) buy a home
  • Increasing your income now
  • Increasing your income upon retirement
  • Reducing your income tax liabilities (or your estate tax liabilities)
  • Financial security throughout the rest of your life, including your wants for home health care or independent living
  • Travel
  • Cars and “toys”
  • If you are married, keeping your inheritance your separate property or sharing it with your spouse
  • Charity

Step 2: RANK (PRIORITIZE) YOUR WANTS. Now be serious. Based on your values and your goals, rank the above wants from least important to most important. It’s a good idea to repeat this process until you find that your ranking of your wishes has not changed. When you are confident that your priorities are well informed and won’t change, then go to step 3.

Step 3: INVEST (OR SPEND) YOUR INHERITANCE ACCORDING TO YOUR PRIORTIES.  Don’t be swayed by the first “want” that hits you or by pressure from others. Be intentional. Be thoughtful. Understand any potential investment (and the tax implications) before you make the investment.  Ask your legal, tax, and investment advisors for their objective input. Spend or use your inheritance according to your most important, most valued, most long lasting “wants.” Doing this, I believe, gives you the best opportunity (a) to improve your life with the inheritance and (b) to avoid regret.

Step 4: Create or update your estate planning documents to reflect your wishes as to (a) how these investments are to be handled if you become ill and (b) who inherits these investments on your death. Seek the counsel of your accountant, investment advisor, and estate attorney. While you go through this process, keep your inheritance safe.

Copyright James J. Phillips January 2017