by Frederick “Rick” A. Fisher, MS, CFP®
In what has been called the “Great Transfer of Wealth,” professionals estimate that over $30 trillion will be transferred from Baby Boomers to their heirs over the next 30 years (Business Insider, 6/12/14). This event is forecasted to be the largest transfer of wealth from one generation to another in history.
Many hardworking Americans plan to rely on their inheritance to fund their children’s education or their own retirement. However, large financial windfalls are often both a blessing and a curse to those on the receiving end. Some heirs expect an inheritance to relieve them of financial worries. Sadly, in too many cases the acquisition of new wealth poses new problems and financial risks.
The Risks of an Unexpected Windfall
Many people are unaware of what it takes to properly manage a large sum of money. Our culture has not placed a high priority on basic financial management, let alone managing the complexities of significant wealth. Beyond basic investment management, which can be easily delegated, there are complex questions including:
More importantly, recipients of large sums of money are often unaware of how to plan their new day-to-day lives. Partnering with an experienced financial professional can help answer questions like:
Should I quit my job?
How do I avoid excess taxes?
Should we purchase a larger home or move to a new city?
Should we pay off our home or invest our cash?
How will this change my long-term financial plan?
Do I have enough to help support friends or relatives?
Will I run out of money?
Planning For a New Lifestyle
It’s critically important to plan how newfound wealth will affect one’s day-to-day living. For a minor inheritance or lottery, this will be of little consequence, however as the windfall increase, so does the responsibility and risk for potential mistakes. If the windfall represents a significant portion (over 20%) of your net worth, you may be best served partnering with certified professionals such as accountants, financial advisors, and estate planning attorneys.
Don't Forget to Assess Your Relationships
During my 17 years working as a financial professional, I have seen many people overlook how a windfall will affect their relationships with family and friends. Sadly, it is not uncommon for friends and relatives to treat you differently, and sometimes take advantage of your new wealth. This relationship strain can be the most emotionally taxing experience for those who receive a significant windfall. It’s important to be aware of this risk and make a plan to help avoid potential negative consequences.
Simple Steps to Help Avoid Financial Mistakes
By working with an experienced financial professional, you can plan how to spend and invest your wealth, as well as understand how to potentially avoid costly mistakes. If you come into a financial windfall, I recommend these steps:
Avoid making drastic changes in spending habits or other lifestyle changes until you get professional guidance.
Consider how this will possibly affect your relationships and take steps to mitigate those risks.
Do proper due diligence and find an unbiased and experienced financial advisor that you trust.
Ask for referrals to a competent tax professional and estate planning attorney.
Often, windfalls come at emotional times, such as after the death of a relative. It’s important to be patient while making decisions regarding your wealth. Working with a financial advisor may help you avoid common mistakes and feel more confident in your choices.
About Rick Fisher
Rick Fisher is a financial consultant offering comprehensive financial planning and investment management with Ostrofe Financial Consultants, Inc. in Grass Valley, California. His goal is to help clients prepare for retirement and pursue their financial dreams in a fun and personal way. Rick serves clients in 15 states, though most reside in California, including the greater Sacramento, Los Angeles and San Diego areas.
Credentials and Experience
Rick holds FINRA Series 7, 63, 65, 24, and 51 licenses and is supported by Ostrofe Financial Consultants and National Planning Corporation. He also holds his California Insurance License and the designation of CERTIFIED FINANCIAL PLANNER™ professional (CFP®). The CFP® designation is awarded to experienced financial professionals who pass an examination and pledge to abide by a strict code of ethics. He holds himself to their high standards of integrity, objectivity, professionalism and confidentiality.
How Rick Can Help
Rick strives to take the fear and stress out of financial planning. He works with clients to uncover financial issues they may not have known about or have not yet addressed. Rick and the Ostrofe Financial Consultants team are there to answer questions, guide clients towards their goals, and help them feel confident in their future. To learn more about how Rick may be able to help, call his office at 530-273-4425.