Inheritance

September 15, 2011

Although an inheritance need not come from a spouse’s estate, many of the following issues are those faced by widowed women. Due to their greater longevity, women over age 65 are almost three times more likely to be widowed than men. If a woman has not been involved in financial planning with her spouse and is not aware of the marital assets or marital liabilities, in addition to dealing with her loss, she may face new financial realities very quickly. If her husband left her well provided for, there are still special considerations and concerns to face when coping with her new wealth, which are discussed below. However, if the wife was not left well provided for, she may be faced with creditors and the need to make a change in lifestyle, including entering or returning to the workforce if she is not employed outside the home.

Inheritance laws, which can be quite complex, are governed by state law. Most states are “noncommunity property” states. In community property states, each spouse has a claim for ownership of one half of the property acquired during the marriage. In noncommunity property states, the surviving spouse does not automatically have a claim on the marital assets. In most states, a surviving spouse who feels that the decedent’s estate plan treated her unfairly has the right to elect to take under the laws of intestacy succession rather than under the will. This means that the surviving spouse will receive the share of the estate that she would have received if the decedent had died without leaving a will.

Individuals living in nontraditional relationships should also be aware that in all but a very few localities, estate planning is particularly important to protect their interests because otherwise they have no legal rights upon the death of the significant other. unless assets are titled in joint names or the decedent has executed estate planning documents (e.g., a will and/or trust) naming his or her partner, the survivor will have no legal claim upon the decedent’s assets. Many involved in deeply committed relationships suddenly find themselves literally forced to leave a shared home and treasured belongings when a death occurs.

As noted above, even being well provided for by an inheritance can be accompanied by various issues and challenges. Many people think that money will solve their problems, but that belief may not be realistic. For the woman who has not been involved in the family’s money management, being faced with the new responsibility of financial management can be stressful and can place the woman at risk of exploitation. She may not have a relationship with reliable professionals who can help her soundly manage money or plan for her future. She is likely to be faced with advice from many different sources and recommendations or requests from individuals who are looking to benefit from her lack of experience. It may also be difficult to decide between purchasing some extras that she has always wanted, planning for her future, and providing financial assistance to children or other family members. It may be necessary to talk to several individuals to find the right fit for guidance for the future.

The death of a loved one is a stressful period. The receipt of inherited funds may occur at a time when the heir is also grieving her loss and is in a state of emotional turmoil. For example, there may be guilt that money has been received at the expense of a loved one. At this vulnerable time, making important financial decisions can be a struggle. Sorrow may be crippling and may impede one’s judgment.

Sometimes, inheritance is unexpected. Many parents do not share their financial status with their children. Many others have not prepared an estate plan. Even with a well-written will, questions will need to be answered. Should the assets of the estate be disbursed right away? Should the family house be sold? What happens when one sibling wants to sell while the other wants to wait for various reasons? Should you give gifts or lend funds to friends or relatives? Should you buy a new house? A car? Should you take the vacation you have always dreamed of?

An inheritance may be the single largest sum of money that one receives in her lifetime. It may be significant enough to cause a reevaluation of one’s goals in life and one’s standard of living. Questions concerning career, retirement, providing for children’s education and welfare, and considering charitable donations are all factors to be considered.

Financial advisers all agree on one basic rule when an inheritance is received. Do nothing for a while. Do not make any decisions immediately. It is important to deal with the emotional issues of inheritance before tackling the financial ones. A good rule of thumb is to wait 6 months to a year before making lifestyle changes. During this interim period, do not allow yourself to spend frivolously. If the inheritance is in cash, it might be held in short-term certificates of deposit, money market accounts, or other low-risk investments while a financial investment strategy is being developed and relationships with professional advisers are developed.

These advisers may include a lawyer, an accountant, a financial planner, and/or a money manager. The criteria used to select advisers should include honesty, integrity, experience, professional competence, and the appropriate credentials. References should be requested and the potential advisers should be interviewed. Quality of service should be more important than cost. An attorney can assist with probating the will and/or making distributions from a trust. Once the matters that need to be attended to immediately are resolved, you should consider your own estate planning needs. Even if you have estate planning documents in place, your estate plan should be reviewed if there has been a significant change in your family or in your financial status.

An inheritance will serve you best when used to build on your existing strengths. An individual plan must be developed. By taking a look at your entire financial situation and consulting with an estate lawyer and financial planner, you can utilize the money to your best advantage. Ask yourself these basic questions:

  • Does your income exceed expenses?
  • Are you saving at least 10% of your salary?
  • Do you have money set aside for emergencies?
  • Do you have adequate insurance?

Once these questions have been answered, you can think about investing your inheritance. Protect yourself. Preserve and conserve for your own future. Develop a plan for your retirement. If your employer offers a retirement plan, and even better, matches your contributions, your inheritance may enable you to establish an account or increase the contributions from your salary. If an employer-sponsored account is not available, or in addition to such an account, you might want to open an individual retirement account (IRA). For funds that are to remain readily accessible, compare the return on money market accounts to savings accounts and short-term certificates of deposit. Compound investments in mutual funds and stocks by reinvesting the dividends. If you divide your investments into a variety of categories and diversify interests, the risks will be varied and thereby increase your opportunity for profit.

Trust documents are an option in planning for your own financial future. A trust can protect assets from some creditors, provide for administration of your assets if you become incapacitated, and avoid probate administration upon your death. The trustee of a trust will fulfill two jobs—administration of the trust and money management. Again an attorney will be able to advise you best when it comes to this area. Making provisions for family members with special needs is a crucial issue, one best handled by a knowledgeable professional.

Improved financial planning will help you achieve lifetime goals. You should exercise caution and think of your long-term needs. Money can provide security, comfort, and convenience; like many things in life, the best plan will balance satisfying immediate needs and desires with preserving assets for the future.

SEE ALSO: Probate

Suggested Reading

  • Barney, C., & Collins, V. (2002). Best intentions: Ensuring your estate plan delivers both wealth and wisdom. Chicago: Dearborn Trade.
  • Plotnick, C. K., & Leimberg, J. D. (1998). How to settle an estate: A manual for executors and trustees. New York: Penguin Putnam.
  • Rottenburg, D. (1999). The inheritor’s handbook: A definitive guide for beneficiaries. Princeton, NJ: Bloomburg Press.

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