Unfortunately, this can leave other loved ones worried that the person who inherited has gone crazy. It can also breed resentment if other family members believe they’re entitled to a share of the funds and want to maximize what they collect.
For example, let’s say Winnie’s mother, Maryann, just inherited $5 million and has gone on a spending spree, buying a new home and a luxury car, and taking friends on vacation. Winnie is worried her mom has gone crazy with her newfound riches, while Winnie’s husband Kevin wants to quit his high-pressure job and coast until the couple eventually inherits when Maryann dies.
So, what should Winnie, her mom, and Kevin do in this situation?
Managing an inheritance wisely is important, but it’s up to the heir
When it comes to inheriting money, the person leaving the assets behind is often best positioned to protect the wealth and ensure it’s not wasted.
“If family members struggle with making wise financial decisions, then we are big proponents of using a corporate trustee to help manage the money,” Nathan Donohue, founder of Valence Wealth, told Moneywise. Trust creators can provide instructions on how money is distributed and choose a responsible trustee to help ensure the assets are put to good use.
If Maryann inherited outside a trust, though, there are likely no restraints on her spending. And even if Winnie thinks Maryann has gone hogwild, there’s nothing she can do about it without proving Maryann is actually of unsound mind and should be declared incapacitated. Maryann’s wild spending isn’t proof of that. In fact, it’s very common.
“Receiving a significant inheritance can be challenging, particularly when someone hasn’t prepared for managing a sudden increase in wealth,” Jessica Nino, a principal and financial advisor at Edward Jones, told Moneywise. “Beyond the financial decisions, inheritances often arrive during periods of grief, which can make it difficult to think objectively.”
Nino explained that an heir should ideally commit to not making any major spending decisions immediately, and instead should take time to understand the assets, the tax considerations associated with inheritance, and how the assets can support long-term goals. Getting help from a financial advisor could be helpful in making a plan for the money.
“I’d also suggest that the person establish some personal rules,” Faran Douglas, a family law attorney, told Moneywise. “For example, no investment that can’t be explained clearly, no large loans or gifts made on the spot, a waiting period before purchases above a certain amount, and a second professional opinion before making an unusually large or irreversible financial decision.”
However, Maryann doesn’t have to follow this advice, and it’s her choice whether to save some of the money or spend every dollar as carelessly as she wants. Winnie can try talking to her about her spending, but Maryann may not want to hear it. Pressing the issue further could potentially just damage their relationship.
