On the face of it, receiving a large inheritance doesn’t sound like a problem – but sudden ownership of significant wealth creates a variety of challenges and headwinds that you may not have expected. You’ll want to know how to ensure that your inheritance serves to enrich your life rather than burden you with new problems. Paul Barrett from Absolute Wealth Advisers is one of Australia’s most experienced Wealth Managers and a specialist in family wealth strategies.
He explains the 5 things you need to do when you receive a large inheritance.
1. GO SLOW. GRIEVE FIRST.
Chances are, if you are expecting an inheritance, once you are informed of your loved ones death it will take at least several months until you take ownership of any assets when the executor of the will has them legally signed over to you. Depending on how complex the will is, and how diversified the assets are, sometimes it can take longer than a year for the inheritance to end up in your hands.
So, step one is take some time to grieve and square away any emotional upset which can make it hard to think straight or to find the motivation to imagine what you will be doing or needing in a few years time. The big challenge with someone who suddenly inherits millions is that he or she can become overwhelmed with their choices. Having infinite options is often stifling. Don’t rush into any large financial decisions, but use that transitional time to start thinking about putting your wealth management team together so that you can be properly represented, set up and advised from the outset. A good team will ensure you are able to maximise the benefit of your inheritance.
2. BUILD A DREAM TEAM FOR YOUR FUTURE
When you receive a large financial windfall like an inheritance, all kinds of people come out of the woodwork to tell you what you should do with it. That’s why you need to form a team of trusted advisers – preferably highly qualified professionals, who can walk you through the inheritance process. At Absolute Wealth Advisers we work with advisory teams for our clients that consist of:
A Wealth Manager (Financial Adviser) who acts as a general manager for your financial affairs and co-ordinates the efforts of the advisory team. Your wealth manager will develop a financial strategy and financial forecasting for the long term in accordance to your needs and values. They will also assist with estate planning, insurance, advise on and manage investments, and help devise and manage tax efficient structuring via companies and trusts in conjunction with your accountant. They will look after the implementation of your strategy and largely relieve you of the day-to-day administration of your affairs. A good wealth manager will also ensure that your intrinsic wealth is nurtured – making sure your monetary wealth can be put to good use by helping you achieve your personal goals and by providing opportunities and security for your own family.
A Certified Practising Accountant (CPA) or tax adviser – who will monitor income and expenditure, devise and manage tax effective strategies to handle your wealth and ensure all tax and legislative financial obligations are met.
A Lawyer - who will represent you in business or property transactions, who will protect your interests when documenting contracts, wills, tax law and prenuptial agreements.
From time to time you may need the assistance of other specialist professionals like real estate buying agents, mortgage brokers, business brokers and family dispute mediators. A good advisory team will have a strong network they can refer you to or co-ordinate for you.
These people aren’t there to tell you what to do. They should be guides who will sit down with you, listen to your ideas, issues and concerns and help you understand all your options.
When Absolute Wealth Advisers collaborate in advisory teams for our clients, we ensure members are independent of each other, but have open lines of communication and meet regularly (usually quarterly) to ensure all aspects of your wealth strategy are operating in line with each other. Having independent advisers also gives you an opportunity to make sure they keep each other accountable for reaching objectives and acting in accordance with your wishes.
If you do not already have a financial adviser, you might choose to work with the same adviser of the deceased, or prefer to find your own. Your accountant or your lawyer will be able to give you a list of advisers they recommend. Ideally you will work with the same wealth manager for decades to come, so finding the right fit is important. A good personal connection and a proven track record are essential. Interview several advisers using a similar set of questions. Ensure the person you choose is experienced in dealing with high net wealth clients, is someone who is really listening to you and understands your goals.
3. NAVIGATE THE MONEY EMOTION HIGHWAY
Wealth is absolutely more than just money because it will change your life in many ways. Having and inheriting money has a marked impact on one’s core identity — on the beliefs and values that map how we see ourselves, as well as how others see us. And that’s why you are going to have a lot of feelings around your inheritance. Sharing your thoughts with your wealth manager will enable them to develop strategies to help you through both the problems and opportunities related to your inheritance. How you feel about the money will help them to map out your wealth pathway and create your financial forecasts. It will help them to determine how and when to manage your investments and what level of risk gives you peace of mind.
Here are some of the emotional challenges and questions that are common for large inheritors:
You might be scared by the thought of losing the money now it has been entrusted to you.
You might find the responsibility of managing the money for yourself and future generations a heavy burden and feel overwhelmed by the financial options open to you.
You may resent managing the pile of administration your wealth creates.
You might dread having to learn about and keep up to date with what is happening in your portfolio.
You might fear that advisers will take advantage of you, involve you in complicated transactions and talk down to you.
Your inheritance might lead to tension or conflicts in relationships. Decisions over what to do with the money or a sense of entitlement from your spouse or other family members can be tricky to manage.
You might experience guilt about your inheritance, or feel that you do not deserve these gifts, which will complicate your ability to move forward in your life with a positive relationship to your wealth.
You may lack a sense of your own identity because you feel you are living in someone else’s shadow. Lofty expectations that come from following a successful predecessor can be unrealistic and burdensome.
You may start to undervalue your own accomplishments because there is always the suspicion that success is at least partly the result of someone else’s efforts.
You may feel that sometimes what family ask of you, expect you to participate in and provide opportunity for, gets in the way of you living your own life and getting your own life on track.
You might experience the discomfort of family and friends approaching you for loans and donations, or awkward situations when loans are not paid back.
You may experience a sense of isolation because your wealth creates a gulf between you and other people you encounter in the course of your life.
You may fear you would not be liked or admired if you were not wealthy and start to distrust the motives of some friends and acquaintances.
Maintaining a sense of normalcy might be important for you. You may want to live a "normal" life, blending in with the other parents at the drop-off line at the school, shopping at the supermarket, and so on.
While you might be happy to splurge on homes and holiday destinations you might have a desire to maintain a high degree of privacy around your wealth.
On the upside:
You may feel tremendously lucky and privileged.
You might see this money as a path to personal fulfilment and use your inheritance to aim for ambitious goals.
Your money might represent status and recognition, leading to feelings of power and confidence.
You might be brimming with so many exciting ideas you don’t know what to do first.
You might see your inheritance as an opportunity to finally take it easy and want someone to help ensure that your money will last you through your lifetime.
You may see your inheritance as a vehicle to make a positive impact in society or to initiate change.
Everyone will feel differently about his or her inheritance. Understanding the role of money in your life will enable you to facilitate an emotional connection to wealth and will allow you to use it to create meaning, personal empowerment and a sense of social responsibility.
A good wealth manager will help you map your money identity based around your own values and passions and help you to develop clear goals and a framework to move forward.
4. TAKE THE REINS AND START MAKING MONEY DECISIONS
Once you come to terms with how you feel about your money and have decided broadly what it is you want your wealth to do for you, it's time to start making decisions and practical steps forward. Success in this area comes when an inheritor develops a hold on finances characterised by the feeling of truly owning their money. While details of wealth management may be delegated to your advisory team, you should aim to get a handle on saving, spending and investing your money. Here’s a list of the things you will need to consider:
Which assets will you keep?
Which assets will you sell? How will you sell them? And what will the tax implications be?
Are there any assets that need to be moved from different countries?
Is there an opportunity to simplify the wealth pool and achieve your goals with a more streamlined structure and investment strategy?
How long will you need this money to last? And how does that affect your monthly budget?
How do you wish to divide the inheritance pie between - paying off debt - making purchases - investing - saving - charitable donations - entrepreneurial endeavours - passion projects - allocations for education and healthcare
Is your wealth properly protected?
What will the most tax effective structures for your decisions be? You may need to form a Trust or a company.
What criteria will you use to invest?
What is your risk profile?
How will you diversify over different asset allocations?
You will need to update your will and possibly make a pre or post--nuptial agreement.
Typically, all of these decisions will be made in consultation with your advisory team who will also be responsible for the administration and implementation of your plans. Your financial goals and needs are bound to change over time and an ongoing relationship with your advisory team will ensure that you are prepared for new circumstances and opportunities as they come along.
5. PAY IT FORWARD - LOOK AFTER FUTURE GENERATIONS Having significant wealth provides the opportunity to influence and help others, which is one of life’s greatest pleasures and privileges. If managed properly, your wealth can be preserved and shared for the benefit of both current and future generations. After a period of concentrating on creating your own financial story you may want to look at developing a Family Wealth Pathway where financial decision-making is based upon a broader family mission and set of values. For example rather than bestowing your own wealth evenly between your children you may want to put some of your money into a trust, where money is invested professionally to ensure that all of your grandchildren and possibly their children receive a fully funded education.
If it is to last over generations, children need to be prepared to inherit wealth, and in turn wealth needs to be actively created in each generation. Families who do best with these matters often nurture an entrepreneurial spirit and invest resources in education about wealth to actively adjust to the needs and qualities of the family itself. They put frameworks and structures in place to ensure money flows to its intended purpose, rather than being diverted or squandered along the way. Successful wealthy families get together to explore the issues of wealth in their lives, and explore the choices facing their children and beneficiaries. Sometimes they chat at the family home over a meal, or they can have a more formal gathering with their advisers, where they talk about specific approaches to money, investing, spending and giving. Meeting as a family to discuss values, how money will be shared and used, and what is important to each member, is a key activity for the successful management of family wealth.
As a legacy, some families also choose to set up a foundation to achieve purpose and meaning in their lives by using their time and energy in making a difference in society. This outward and expansive life focus can help heirs overcome the guilt they may experience about coming into money and help them set priorities for their own self-development.
Paul Barrett, director of Absolute Wealth Advisers works with high net worth individuals and families to develop and achieve their long-term financial goals. His favourite mantra is ‘simplify the complex’. Wealth does not have to be overly complicated in order to offer great prosperity. Many of his clients have been with him for over a decade. If you have any questions about managing an inheritance or developing a Family Wealth Pathway email Paul here.