Windfall inheritance situations are not as common as they used to be. The dynamics of wealth have changed, and we live in a world where assets are more carefully managed, which means you’re more likely to receive periodic distributions from a trust than a large, lump sum of liquid assets. Nonetheless, you never know what life may throw your way, which is why it helps to know what to do in case you receive an unexpectedly large inheritance.
Formulate an Asset Protection Plan
The first step is to acknowledge that third parties will learn about your inheritance and may plan to claw at the assets. Creditors, long-lost relatives, former spouses, gold diggers, and frivolous plaintiffs tend to materialize the moment a will is filed in probate court. If they aren’t able to claw at the estate, they will try to do so when you receive the assets. Discuss your asset protection options with a San Diego financial planning expert so your inheritance can be transferred to a legal structure such as an irrevocable trust, whereby you are a beneficiary and not the actual owner of the assets, which prevents litigation attempts.
Get Advice on Taxation
Your financial planner will also recommend strategies to lower your tax liability, which may have been alleviated if your inheritance comes from a trust, or it may have already been assessed if it came from a will. The key is to figure out whether future tax liabilities could come into play and how they can be reduced.
Establish a Timeout Period
Having a timeout period is very important insofar as preventing a sharp reduction of your assets. The temptation of going on a shopping spree or taking expensive vacations will be very strong, which is what happens to more than a third of people who find themselves in your same position. Your financial planner can develop a prudent spending plan and set a financial horizon that takes into account one of the most crucial rules of money management: liquid assets tend to be worth more today than tomorrow.
Get into Early Retirement and Estate Planning
Now is the best time to make financial plans for the future. As previously mentioned, asset protection is vital in terms of keeping your money safe, and it can also become the pillar of your retirement and estate planning. Think about how your inheritance can come into play as you get older and how your loved ones may benefit from your windfall. You should also designate a trusted party to manage your funds in case you become incapacitated.
Invest Your Inheritance Wisely
The time value of money is like a clock that starts counting down and reducing your new net worth the moment you receive your inheritance. You’ll have no shortage of investment options that can help you mitigate the time value of money, but you have to evaluate each option and understand the risks involved. Keep in mind most investment options will involve expenses you should consider.
After inheriting a large sum of money. It’s important to discuss the above considerations and much more with a trusted financial planner. Jan Gleisner has a long history in the industry and can help you make sound financial decisions. Call 858-337-2385 today to set up an appointment.