Inheritance Tips

BECU Investment Services

What would you do if you suddenly came into a large sum of money such as an inheritance? Read our suggestions to use it wisely.


A significant portion of those who inherit large sums of money blow through some or all of their newfound fortune rather quickly. In 2012, a researcher at Ohio State University found that about one-third of Americans who receive an inheritance had negative savings within two years of receiving the inheritance1.


Over the next several decades, the biggest and wealthiest generation of baby boomers in US history will transfer roughly $30 trillion in assets to their Generation X and millennial children2. Interestingly, though, future heirs may not even know what's coming and may be unprepared for sudden wealth. A 2016 CNBC millionaire survey found that nearly half (44%) have not told their children about their future inheritance, fearing it would negatively impact their work ethic3. More than three-quarters of those who will be passing along that wealth (78%) feel “the next generation is not financially responsible enough to handle inheritance.”4 


Are you prepared for an unexpected financial windfall?


As human beings, we are all hard-wired for instant gratification. We tend to focus on current rather than future outcomes. So, we often spend unexpected new money impulsively, rather than focusing on future outcomes that will have a much longer lasting impact.


If you are fortunate enough to come into an inheritance, win the lottery or even get a big bonus, here are some good tips to follow:

1. Take a timeout.

Consult with a financial advisor who can help temper emotional impulses.

2. Draw up a list: 

Include items that would enhance your financial health:

  • Pay off debts. Start with high interest loans/credit cards or other debts.
  • Establish an emergency fund (if you don't already have one).  You should have a minimum of three months of liquid assets to cover living expenses in the event of an emergency cash crunch or job loss. Six months is ideal.
  • Review your long-term financial strategy. Some of the top strategies include:
  1. How can I improve my retirement outlook?
  2. If you have children, are their college plans set?
  3. Will this help me buy the home I have wanted?
  • Cover taxes. Your inheritance and/or windfall may well come with a tax bill. Make certain you set aside enough to cover your taxes—or you could be in for a big surprise the following spring.
  • Charity. There may be a charitable interest you want to donate to—or increase your donation to. Now would be the time to assess where that fits in.

3. Be on alert for “vultures”.

Once the word spreads that you came into significant money, you may suddenly discover long-lost relatives, find new “favorite friends”, or fall squarely into the sights of scammers. 


A good answer for all of these people?  “Interesting idea.  Let me talk to my financial advisor.”  


That will throw most people—including scammers—off.  Be aware, though, there may be some subtle or overt shaming if you don't share with family and friends. Be strong and stick to your plan, sharing with those who were part of your pre-planning. If you want to add someone to that list, consult with a trusted person who can make certain it makes sense and is not just a knee-jerk emotional response.

4. Have some fun!

It's okay to do something fun (within reason). Take that trip you've always wanted to go on, or buy a new set of golf clubs. But make a pact to limit yourself to no more than 10% of your newfound money in the first year. At the end of the year, logic and reason will hopefully prevail. 


Coming into sudden money can be a very gratifying experience. If it happens to you, consider yourself very fortunate, but be sure you have a plan in place to not squander it away.   

Questions?

Financial advisors with BECU Investment Services are here to help. Click here to set up a complimentary consultation or call 206.439.5720.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


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