One-third of all Americans expect to receive an inheritance, according to recent polls. However, many beneficiaries in Minnesota and nationwide do not use these assets wisely to meet long-term financial goals.
Prudent use of an inheritance allows beneficiaries to rescue retirements, pay off family debt or finance a family member's education, among other things. Most Americans, however, do not meet these goals. A Certified Financial Planner Board of Standards' study from August 2016 revealed that 52 percent of percent of Americans believe they are behind on saving for retirement while 48 percent admit that they do not save enough each month.
Common mistakes lead to the dwindling of inheritances. First, heirs spend on small indulgences which grow into large unreasonable spending that depletes the inheritance and diminish their long-term financial goals.
Decisions are also made too quickly and without earlier planning. Selling a house, leaving a job or making a major purchase should take time. Inheritances usually follow the loss of loved ones when people are emotional and not thinking clearly.
Individuals who receive a lump sum inheritance are often worried about investments and do nothing. One investment option may be dollar cost averaging which divides available funds into equal parts and then puts the money in a diversified portfolio over time.
Some heirs spend on others, do not provide for themselves or fail to make or comply with a financial plan. Support for children, other family members, friends and charities should wait until an heir makes sound financial decisions.
Finally, managing a potential windfall such as an inheritance is much more complicated than making decisions over a 401(k) plan or taxes, which can be handled alone. Financial advice should be sought from an accountant or certified financial planners. An estate attorney can also provide legal options to testators and heirs, and can help a testator plan for their family's financial needs while avoiding litigation.
Source: PR Newswire, "Handling an inheritance: 5 mistakes that keep Americans from building legacies of their own," May 17, 2017