How I’m Talking To Clients About Managing an Inheritance

Sudden money can be exciting, but many people who receive windfalls end up squandering them. Retaining and protecting wealth is a skill set many haven’t learned yet, and inexperienced wealth builders are at risk of making big mistakes with large sums of money.

However, with a few key mindset shifts, updated practices, and the support of a trusted financial advisor, clients can learn how to manage wealth responsibly and use that money to change their lives.

Key Takeaways

• People can come into large sums of money through inheritance, selling of assets, gifts, or lottery winnings.
• Many are unprepared to manage this wealth, often leading to impulsive decisions that harm financial security.
• Taking a “quiet period” for a year to learn about finance, hire advisors, and acclimate emotionally to new wealth can help ensure long-term financial success.
• Developing skills to build, retain, and protect wealth is crucial for turning a windfall into lasting financial success.

We’re in the midst of a massive wealth transfer between generations, with women alone poised to inherit $30 trillion by 2030. 

Yet most people are missing one key to managing an inheritance or windfall without regret: financial wisdom on stewarding and managing that money for long-term wealth. In fact, according to a 2024 survey conducted by Citizens Financial Group, 32% of respondents said they had received poor advice after coming into a large sum of money.

Most people receive consistent paychecks and spend their income as usual, leaving them ill-prepared to handle sudden wealth. This lack of readiness, combined with distrust in financial professionals, conflicting advice, and impulsive decisions like overspending or quitting jobs, often leads to squandering newfound fortunes instead of nurturing them.

However, when clients pause to consider their goals, confront their inner Money Operating System®, and work with a trusted team of advisors, they have the chance to see their sudden inheritance or windfall have a real impact on their present and future.

What I’m Telling My Clients

1. Create a One Year “Decision-Free Zone”

This concept was first suggested by Susan Bradley, creator of the Sudden Money Institute and author of Sudden Money: Managing a Financial Windfall. I call this the “quiet period.” The gist: Don’t do anything irrevocable with the money for this period–don’t spend it; don’t allocate it; don’t quit your job or sell your house.  

In the specific case of inheritances, the grief of losing a loved one can heavily influence decisions. It’s important to acknowledge this emotional weight.  Emotionally grieving before you make decisions with the money will lead to sounder decisions in the long run.

2. Interview and Gather Your Team of Advisors

During your quiet period, take the time to begin or further your education about finance and investing and interview and hire a team of advisors. 

A good advisory team typically includes a tax preparer (particularly when real estate is involved), a financial advisor, and an estate planning attorney.

Note

There might be other specialists involved depending on the situation, like a probate or estate attorney.

3. Understand Your Money Possibilities

$500,000 may seem like a huge windfall, but there aren’t many places in the U.S. where you can retire on that amount. 

The biggest mistake people make is that they get so excited about having the money and are inclined to spend it immediately.

Yet if you were to invest that half million dollars in a globally diversified, low-cost investment portfolio that grows at, let’s say, 8% after its first year invested, you’d have $540,000. Using the Rule of 72, in just nine years, your investment could double in value. If a 35-year-old came into $500,000 and invested it at this rate, by age 62, they’d have $4 million.

A financial advisor can help you understand the financial potential of your inheritance.

The Bottom Line

Ralph Waldo Emerson once said, “When you have a great fortune, it requires ten times as much skill to keep it.” 

Those receiving inheritances often lack that skill—at least initially. By educating themselves and assembling a team of trusted advisors, our clients can learn to understand the opportunities their wealth brings and develop a plan to make those opportunities a reality.

Read the original article on Investopedia.