How to manage inherited wealth?

Date : 24/03/2021
Read: 4 mins

If managed efficiently, a substantial inheritance can last generations.

Many people who come by an inheritance or windfall gain are not prepared for it. There are many complexities that one has to deal with. Losing a loved one can bring a tremendous amount of emotional stress, change in interpersonal dynamics with other family members, as well as the challenge of being thrust into the intricacies of asset and financial management of your departed spouse, parent, or benefactor.

Here are some best practices to keep in mind if you find yourself in such a situation.

1. Resist taking emotional decisions
Many people who come into money suddenly tend make frivolous emotional decisions such as quitting their job, buying an expensive vehicle, or splurging on unnecessary luxury items. The inheritance may also re-jig the love of many relatives and friends looking to cash in on your newfound wealth. It is, therefore, important to maintain discretion and avoid any impulse decisions.

2. Park the funds securely
Constructing an investment strategy takes time. In the meanwhile, park the funds in secure money market/liquid funds or bank deposits. For a substantially large sum, spread the investment risk across multiple banks and funds. There are no entry/exit barriers to these investments; they can generate passive income till you decide how to deploy the funds.

3. Consult a trusted financial/tax advisor
There could be various financial and legal implications arising out of an inheritance or windfall. Before you take any decision about using the money, get a tax professional on board who will be able to assess any outstanding liabilities of the benefactor. You should also consider hiring a fiduciary wealth manager with a good track record, who can objectively guide you towards managing and maximising your wealth.

4. Pay off existing loans and liabilities
The first good use of the inheritance should be to pay off any existing debt you may have. Close high-interest loans such as credit cards and personal loans first. Depending on the inheritance, prepay a part of your mortgage or close it in full and save yourself lakhs in interest charges while becoming debt-free.

5. Fast-track your financial goals
Use the your financial advisor’s expertise to turn the inheritance into a sustained lifelong income stream. Identify your various financial goals and looks for secure ways to achieve them. If the inheritance is big enough to support an early retirement, your next focus should be on generating a consistent cash flow, budgeting expenses (so they don’t get out of hand), investment protection, and tax management. If managed efficiently, a good inheritance can last you as well as the next generation.

6. Appraise insurance and estate planning
Inheritances also come in the form of real estate, art and antiques, jewellery, cars, etc. It would be wise to enhance insurance coverage to cover any risks to these assets. At the same time, it augurs well to plan for your estate so there is no confusion or bad blood among your heirs. To ensure that your children or other family members do not take the wealth for granted, you can also look to limit access by setting up a trust.

7. Be generous to oneself and others
Money is only means to an end, and you should of course enjoy it and help others if you can. Depending on the size of the inheritance, set aside between 5% and 10% to splurge on things you have always wanted. If you’re looking to share the wealth with family and friends, consider helping them pay off their loans and liabilities or build an asset, rather than give out handouts or gifts. Also try to do your bit for the community by supporting charities that do meaningful work.

Last words

An inheritance can be a gateway to a financially secure life for you and everyone close to you. Treat the money with respect and use it wisely – as your benefactor would have expected you to. What is streedhan and how women can protect this wealth?