5 Steps to Managing an Inheritance for High-Net-Worth Individuals

When it comes to handling a large inheritance, it's essential to protect your wealth for years to come. Here are 5 steps to consider presented by Laurence Hale, AAMS®, CRPS®.

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Welcome to You and Your Money. Empowering you to reach your goal with tips to help you Plan Well, Invest Well and Live Well. Today's episode features Laurence Hale, principal managing partner and chief investment officer at Weiss, Hale and Zahansky Strategic Wealth Advisors. Let's dig in to today's topic. All right so now, obviously, when someone receives an inheritance, it can be overwhelming, or at least that's what I've heard. What are some of the things that people should keep in mind when coming in to win an inheritance? Let's talk about that. Well, Gary, you know for sure it can be overwhelming in a number of ways, and not the least of which is emotional. You're likely grieving the loss of a loved one. And at the same time, you may be feeling grateful and excited, but also confused about the inheritance you're about to receive. So as you tackle the responsibility of managing the inheritance, it's important to try and keep emotions at bay and make sure you have a plan for managing that money wisely. Yeah, I would imagine that not all heirs are great at suddenly managing inherited wealth, right? You're right, Gary. They're not. And that's understandable because managing money doesn't suddenly make you a financial expert. Inherit To me, inheriting money doesn't make you a sudden financial expert. In fact, studies have shown that up to 70% of people who receive an inheritance or other large sum of money, such as a lottery winning, will lose it within a few years. So that's why we always counsel our clients on how important it is to talk with their children and other beneficiaries around their finances. And, you know, it may feel uncomfortable, but it's really going to set them up to be a much stronger place to manage that inherited wealth to their best advantage when the time comes. But if that wasn't the case for you, and now you're wondering what to do with the inheritance you just received. The good news is it's never too late to get the help. You need to take a strategic approach that will help you preserve that wealth over time. All right. So let's break it down. What's the first thing you should do if you receive a large inheritance? Well, the first thing to do, Gary, is is to create a team of financial professionals that have your best interest at heart. And if you don't yet work with a wealth management professional, take your time finding one who has worked with others in similar situations and is also a fiduciary, meaning they're required to act in your best interest as opposed as opposed to their own bottom line. When a large amount of wealth is involved, you need to know you have professionals with the right intentions and you'll likely want to choose your financial plan and create one that coordinates with your accountant, your attorney and insurance agent. And utilizing all of these professionals will make the transition of your inheritance as smooth as possible. All right, so now you've created your team to help you through the process. What comes next? I I'm sure you can't receive an inheritance without some tax implications. Well, you know, you're right, Gary, but an important thing to keep in mind is, is the estate tax. And fortunately this in 2023, individuals can leave up to 12.92 million. That's 12.92 million with a m to their heirs without paying any federal estate tax. But if your loved one is leaving you more than that, the estate tax could get hit with a bill of up to 40% on any excess above that 12.92 million. The good news is there's no inheritance tax at the federal level. So does it make any difference if the inheritance isn't just a sum of money? What? What if it's property? Yeah. If you're receiving a physical inheritance such as a home, a vacation, property, cars, antiques, jewelry, things like that, it's important to know you'll need to pay capital gains taxes if you choose to sell any of these things at a later date. And the capital gains tax applies to the difference in the value of the item on the day you receive it versus the amount you sell it for. So, for example, if you receive a vacation property that was valued at $500,000 and you sold it three years later for $750,000, you would be taxed on that $250,000 gain at a long term cap gains rate. So to avoid any tax pitfalls, you want to discuss all of these tax implications of your inheritance with your CPA or financial planner as soon as you can to get ahead of those. And there are strategic issues. There are strategies that can be in place to manage the inherited wealth and assets as tax efficiently as possible. And not employing these strategies could actually cost you quite a bit in taxes you otherwise might not have to pay. All right. So we've covered what to do before taking the inheritance, but what are some of the things to keep in mind after receiving the inheritance? Well, it's always important to keep in mind that when receiving a large sum of money, you could easily be tempted to posted on social media. Tell your friends and neighbors or discuss it with extended family. And that is an urge you should definitely resist. Making it well known that you recently received a large sum of money can make you especially susceptible to unwanted business or investment pitches, or could set an expectation that you're willing and able to pay for friends or family in social settings, like going out to eat, going on vacation, other things like that. Of course, we all want to be generous when we can, but again, managing that wealth that your loved one left to you in a responsible manner means you have to stick to a budget, even if it's a budget that's bigger than one you previously had. The inheritance also may not have been distributed evenly across to all beneficiaries, whether they be children or grandchildren or other family members. So you may not want to be too specific with other family members with regard to how much of the inheritance you received. It could cause hard feelings and negatively affect your relationship with them. All right. So we've talked about what not to do, but what are some tips on what you should do with the money? That's that's really the most important question. And the answer definitely isn't the same for everyone. But everyone needs to follow the same rule of thumb, which is that strategic planning for both the short and long term is critically important. So, for example, you may want to pay off all your debt, mortgages, car payments, student loans, credit cards and so forth. This could be a good choice to make, but you want to be strategic about what debt you decide to pay off and what you may end up keeping. For example, it may be beneficial to pay off high interest credit cards or student loans, but for loans with lower interest rates such as mortgages or possibly auto loans, it may actually be better off to use that money to invest rather than pay that debt down. And again, when you're working with a fiduciary, a financial planner, a wealth manager, it can be invaluable to making the most of your inheritance over the long run. All right. Good topic here. Laurence, and thanks for walking us through the process. Sure. Always happy to talk about topics like this. And it's critically important because people don't talk about this enough. And making your inheritance last takes proper discipline and teamwork. And remember to take your time and ask your team of professionals any questions that you have. And if you'd like help managing your inheritance, get in touch with our team at Weiss, Hale and Zahansky. We are fiduciaries and help clients with wealth management and building strategic financial plans and passing it along to future generations through our Plan Well, Invest Well and Live Well strategic process. You can definitely reach out to us at whzwealth.com or give us a call at 860-928-2341 for a complimentary consultation. All right great topic, Laurence, and thank you for joining us today. Great to be here. As always. Thanks for listening to You and Your Money. Find even more episodes, videos and other resources at our web site,whzwealth.com. Be sure to come back next week for more tips to help you live fearlessly and pursue your financial and life goals. Until then, live well. Weiss, Hale and Zahansky Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret St., Pomfret Center, Connecticut, 06259 and can be reached at 860-928-2341. Weiss, Hale and Zahansky Strategic Wealth Advisors do not provide legal or tax advice. The tenured financial services team strive to support clients in achieving their financial life goals. For more information regarding wealth management and customize financial planning with Weiss, Hale and Zahansky Strategic Wealth Advisors, please visit. www.whzwealth.com.