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Receiving an inheritance is a huge blessing but can become a curse if not handled properly. Too often we hear stories of an heir squandering their gift either because they do not know how to manage it well or they run into financial trouble. This could happen due to the inheritor having outstanding creditor issues, tax troubles, or just being inexperienced with managing financial resources. Regardless of the obstacle, thoughtful estate planning can help address or even eliminate the issue before your heir receives it. If you are expecting to receive an inheritance, it is also vital that you create or update your estate plan.
How Inheritances Affect Estate Plans
If an inheritance significantly changes your net worth, your tax and financial planning needs will also change. You may also have more exposure to lawsuits after receiving an inheritance – especially if you received it through public probate records – since people are more likely to seek out the “deep pockets” in a legal conflict. If your inheritance is the first time you have invested or have had substantial assets, an estate plan can set up safeguards to both manage and protect your wealth.
If you already have an estate plan in place, it is critical to update it so that the plan incorporates your recent inheritance. You will want to consider how you take ownership of the inheritance so that you do not unintentionally commingle inherited property with marital property, thus making it subject to property division in a divorce. You may also want to make changes to whom or how your assets are distributed at your death. This is particularly true if you have a blended family, have changed from a non-taxable to a taxable estate, or if your original estate plans involved utilizing a charitable strategy. Putting your inheritance to work to help you accomplish either short-term or long-term financial goals will help you avoid wasting your inheritance.
Preserving Your Family’s Wealth
Another important reason to re-evaluate your estate planning when you receive an inheritance is to preserve your family’s wealth. Unfortunately, statistics on wealth preservation across generations are grim. Studies estimate that 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third. One common reason for these surprising statistics is the lack of communication among generations. Proactive steps are necessary to preserve wealth for the long term. Families fail to discuss this important topic openly because money can be a taboo topic, or the older generation fears that the younger generation will become lazy and entitled if they know too much too soon, or they fear their private financial information will be shared. However, if your family is open, honest, and proactive plans, they will be much more likely to preserve your collective fortune. Estate planning can provide the foundation to ensure assets continue to be managed properly and are preserved instead of dissipated. Proper planning can be the difference between using your wealth to enable or empower your heirs.
Seek Professional Advice
An inheritance can disappear quicker than you would think, but proper planning can reduce this risk. If you have received an inheritance – or expect to receive one soon – it is vital that you seek out financial and legal advice. Give Littleton Legal a call at (918) 608-1836 to schedule an appointment so we can discuss your options to help preserve your family legacy.