Several years ago, a friend of ours was in the audience as novelist John Grisham related the story of how he “made it.” According to Grisham, he had recently turned in the manuscript for what would become his breakout bestseller The Firm. It was a Sunday morning, and he was preparing to teach the kindergarten class at church. His wife had just arrived with the children in tow. But instead of asking him to go get the Kool-Aid for snack time, she urgently whispered to him, “You need to go home right now and call your agent.” Confused, Grisham asked for an explanation. “He called right before I left the house,” his wife said, “and you need to go home and call him, right now!”
Convinced, Grisham did as he was told. He learned that his agent had received multiple six-figure offers for the movie rights to The Firm—before the book had even been published. The implications were obvious: this book was going to be a hit and would likely generate a significant windfall. Grisham said that when he and his wife regrouped later to discuss the matter, his first words were, “This changes everything.”
Now, it’s unlikely that many of us will get a call like that from a literary agent. But it is entirely possible that many who are in the position to receive a significant amount of wealth—often through inheritance—will have a similar realization of the sweeping changes brought about by becoming responsible for a life-altering amount of money. There are those fortunate few who, by virtue of growing up in a privileged environment, will have received training and education about managing wealth responsibly. But many others do not have that advantage and may face the prospect of a large inheritance with a mixture of disbelief, joy, and panic.
We’ve written before about the importance of intergenerational communication regarding matters of estate planning and inheritance. But in situations where that communication hasn’t happened or is impossible, it’s even more important to make the right preparation. Integrating a significant inheritance into your financial plan requires a shift in thinking. And there are some important steps you can take to get started in the right direction.
Review your current estate plan.
Even if your current plan is as simple as a will, a power of attorney, and an advance medical directive, your new circumstances may require some re-thinking. Depending on the size of the bequest you are receiving, an estate planning professional may recommend the establishment of a trust or some other instrument in order to more efficiently handle the complications that can come with a large bequest.
Take time to understand the nature of the bequest.
An inheritance can take many forms: cash, listed securities, real estate, ownership interest in a business, collectibles, or some combination of all the above. Naturally, the type of assets to be managed makes a big difference in the best approach, and you need to consider this. You should also start gaining an understanding of how the bequest is structured: Is it in the form of a trust, which may govern the timing and amount of your receipt of the assets? Are the assets held in banking or investment accounts that are to be placed in your name? You will also want to learn the fair market value of the inheritance. But perhaps the most important thing at this stage are the first two words of this section: “Take time.” Don’t get in a hurry to pay off debt, make a purchase, invest, or do anything else until you have a thorough grasp of what is coming your way.
Build your team.
If you suddenly learned that you were receiving the responsibility of running a large business that you knew little about, what would you do? Most likely, you’d try to surround yourself with knowledgeable advisors who could help you keep the enterprise running smoothly and profitably. Well, in effect, handling a large inheritance properly is very much like running a business; you must make decisions that will not only preserve the assets but also encourage them to grow. With very few exceptions, those in this position should avail themselves of the best and most trustworthy experts they can find, including a CPA, a qualified estate planning attorney, and a professional, fiduciary financial advisor or wealth manager. You need a team that can combine talents to give you solid, coordinated advice about taxation, investment management, estate planning considerations, and other vital financial matters. Having the right team in place, in fact, may be your best defense against making hasty decisions that aren’t in your long-term best interest.
Continue to educate yourself.
Part of your new responsibility as the “CEO” of your new “enterprise” is to learn as much as you can about finance, investment, taxation, estate planning, and other important financial topics. Your goal is not to become a lawyer, a CPA, or a finance guru, but you should aim to become an informed consumer of the advice and guidance you receive from these professionals. You should make it a habit to keep updated on financial and economic news, changes in the tax code, and other current developments that could affect your financial strategy. Your professional advisors should also help you stay abreast of these topics, especially as they directly impact your individual situation. After all, the more you know, the more confidently you’ll be able to move forward with your new responsibilities. Knowledge helps to reduce uncertainty, which in turn leads to lower stress and more enjoyment of the new opportunities your inheritance can provide.
At Mathis Wealth Management, we utilize our experience, and expertise to develop customized estate planning and investment solutions that are built on your goals, resources, and life priorities. To learn more visit our website to read our article, “Estate Planning and Trusts: How to Know when a Will Isn’t Enough.”
