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Imagine that you have inherited a cool $50 million. What do you do with it? Before you go blowing it all on a fancy cruise vacation, new house, BMW, new car, or yes, avocado toast, take some time to collect your thoughts and let the fact that you’ve inherited a fortune sink in. That’s what Ken from Sacramento did. After inheriting $50 million dollars from his parents, he called into the Dave Ramsey show to gain some perspective on how to manage his money. You can learn from Ken on what to do if you ever wind up in the same situation. Here are a few tips on managing inheritance that we’d like to share:

Stay calm and don’t be in a rush to spend your money

See professional advice

Set clear financial goals

Pay off debts and pad your emergency fund

Invest your money wisely

Don’t blow it all

Giving back

1. Take a Breath and Don’t Rush

This one should be obvious: don’t rush to blow it all. When Ken reached out to the Dave Ramsey show about how to spend his $50 million dollar inheritance, Ramsey offered the following advice: spend some, save some, invest some, give some of the money to charity, etc. The news of an unexpected inheritance can be overwhelming, triggering a flurry of emotions. Try to adjust to your new financial reality before making any rash decisions.

2. Seek Professional Advice

One of the first things you may want to do is to seek out professional advice from a financial advisor. While Ken Consider consulting with a financial advisor, accountant, or lawyer who specializes in inheritance matters. That is why the caller called into the Dave Ramsey show: to receive advice from a professional on what to do with his inheritance. A financial advisor can help you grasp the full picture of dealing with taxes, investments, any fees, bills to pay off, debts, etc. An advisor can offer the best strategies for managing or investing your assets. A financial advisor may also help you tackle paying for everything in this era of high inflation. You may want to consult with an advisor you are really comfortable with, and who you have a good relationship with. You don’t want to stick with the SAME advisor just because that particular person is someone who your parents used (IF your parents had one).

3. Set Clear Goals

Once you’ve gathered the necessary information, it’s time to set clear goals for what you want to achieve with your inheritance. You may want to look at paying everything off you owe before deciding to (wisely) use the money to invest, renovate your house, travel, etc. Specific goals are the key: whether it be diversifying your portfolio, or planning your estate.

4. Pay Off Debts and Build Emergency Fund

This one goes without saying: If you have any outstanding debts (student loans, credit card debt, etc.), consider using a portion of your inheritance to pay them off. Even if you comb through your finances with a financial advisor, you still shouldn’t touch that money and just brazenly spend it all. When you pay off your all of your debts, you can relax and focus on investing for the future. It’s a practical way to secure your financial future and relieve the burden of debt. It’s also good to prioritize an building up an emergency fund to cover unexpected expenses. You don’t have to have a specific amount between three to six months of savings, but if you have an inheritance and are looking to save for the future, it’s always wise to do following: pay off debt and have an emergency fund. It sounds obvious, but when you actually have access to the money, it’s tempting to simply blow it all. You might also underestimate how much money you really need to live on and invest for your future.

5. Invest Wisely

Consider diversifying your inheritance into investments to mitigate risks and maximize returns. Consult with a financial advisor to develop an investment strategy. Whether you invest in stocks, bonds, real estate, or put money into mutual funds, TFSAs, or RRSPs, make informed decisions.

6. Plan for the Future

Once you have used that money to plan for YOUR future and invest wisely, you may also want to spread the wealth (to your family members and loved ones, that is). You may want to use some of that inheritance to fund your children’s education. You may not have a million to your name, but estate planning is always valuable. Take the time to create or update your estate plan, including Wills, trusts, and beneficiaries. Planning ahead ensures that your assets are distributed.

7. Enjoy Responsibly

It sounds like a beer slogan, but it’s true: enjoy your money responsibly. Treat yourself to something special, but avoid overspending or making impulsive decisions that could deplete your inheritance. Stories abound about lottery winners who blow through their money within a decade and wind up broke. If you’re not careful, the same could happen to you, regardless of how you come across your windfall (i.e. lottery or inheritance).

8. Give Back

Lastly, many people who have their Wills drawn up often consider leaving something for charity. Many people do this in their Wills, but if you ever come across a significant windfall, you may want to consider donating the money right away. That money you donate will surely have a meaningful impact on others around you.

Whether you inherit a million, or a small windfall, just be sure to manage it carefully.

Be sure to seek out advice, like Ken from Sacramento.

How rich families are passing on their fortunes to their heirs

A supposed “wealth transfer” is occurring. How do rich people pass on their fortunes to their heirs? What can you learn from them?

A whopping $84 trillion in assets will trickle down to Millennials and Generation X. Families should (hopefully) put a lot of thought and planning into how that wealth will be passed down.

This is even more true for uber-wealthy families.

It’s no secret that Millennials and Generation Z are two generations that have been beset with financial and economic struggles: student loans, high inflation, housing, and low job prospects all paint a bleak economic future for both generations. This is why many members of the younger generations are scrambling to make money through “side hustles,” living with roommates for a lot longer, live longer at home, and scrimp and save as much as possible.

The Importance of Estate Planning

The most common challenges

Family Dynamics

Wealth Succession

Other Things

Family Relationships

Philanthropic Giving

Financial Education

Life Insurance

Estate Tax

Wealth Transfer

Passing on wealth to the next generation

This is where the importance of passing down your inheritance comes in:

For a lucky few (we’re talking a very small minority of people on the planet), they have had the good fortune to inherit wealth. The small minority of lucky (wealthy) Millennials and members of GenZ may face other problems when it comes to receiving their assets: they may inherit less than they actually believe. Taxes and other estate fees may eat up their inheritance. Here is how you can learn from the uber wealthy: a study of 270 individuals from families with $50 million showed that some of the most important lessons on wealth planning are as follows:

The most Common Challenges in Wealth Succession

Managing tax liabilities while transferring your assets can significantly impact (i.e. diminish) the wealth passed on to heirs. This means that proper estate planning and a good strategy for passing down wealth is of the utmost importance. In fact, 33% of respondents to a survey said that COVID-19 lead to more frequent conversations about their familial wealth.

78% of people reported having unplanned conversations about wealth, which didn’t go well at all. 26% of of those respondents actually regretted having those conversations. Ouch!

Managing Family dynamics:

The above stat shows why families with strained relationships, conflicting values, and differing values all complicate the process of transferring wealth. This is where the strategies for successful wealth succession comes in: asset preservation, safeguarding your assets from economic downturns, and preparing your heirs for the future are all important (it’s especially important in this day and age, where inflation is at 40-year high.)

Strategies for Successful Wealth Succession:

Estate planning is the basic cornerstone of wealth succession for affluent families (and not-so-affluent families.) This involves creating a comprehensive strategy to manage and distribute assets upon death (or in some cases, while the heirs are alive – which you can read about here.)

Wills: This is a no-brainer: everyone should have a Last Will and Testament, and if you need a basic Last Will drawn up, see here as to how we can help you with that. These are legally-binding documents to help specify how your assets should be distributed and managed upon your death.

Other things an Estate Plan should include:

Asset protection: optimize your tax strategy by utilizing tax-efficient strategies to minimize estate taxes. That will allow you to maximize your wealth and increase the amount of money that your loved ones get. That may include receiving professional financial advice, if you need it.

Family Relationships:

This should be a no-brainer, but having these conversations about money can elicit feelings of anger, sadness, confusion, etc. If you’re going to sit down and have these (uncomfortable) conversations about money, you’d better be prepared for some crying, anger (possibly screaming, yelling), and maybe even threats of physical violence. One way to handle this is through annual family meetings: gather everyone to discuss your plans for your estate, your long-term goals, and how you want your things to be handled upon your death. A good discussion to air things out may help clear the air of any ambiguity regarding your estate.

Philanthropy and Charitable Giving:

Many affluent families engage in philanthropy: they pass on their money to worthy charitable causes. This is their way of leaving behind a positive impact on society upon their deaths. You can see this with wealthy celebrities who have left everything to charity, rather than to loved ones. There are celebrities who believe that their own children should work for their own money (usually with the help of their parent’s connections, of course.) Funneling money through family foundations or through charitable trusts can seamlessly support charitable causes, and get the heirs involved in charitable giving. In other words, having your heirs involved in charitable giving and distributing that money may keep the children of the uber-wealthy from being spoiled brats who live off of their inheritance.

Financial Education and Mentorship:

Rich people, just like everyone else, don’t want to see their wealth squandered. They may also prepare the younger generation with lessons about financial literacy at a young age. Of course, this involves networking and connections (probably connections that many of us don’t have.)

Life Insurance:

Life insurance can serve as an effective tool for wealth succession. It’s pretty much a viable tax-efficient way to transfer wealth to heirs. Life Insurance can also be used as a way to pay off taxes on real estate.

Estate Tax Planning:

Estate taxes can significantly eat away at the wealth people have accumulated into your estate. For wealthy people, this is where estate planning attorneys/tax expert come into play: they help minimize tax liabilities. That isn’t what you want, right? You may want to do the same, and talk to an estate planning lawyer when you are settling your estate. You may also want to start with our estate planning articles, here.

Wealth Transfer Laws:

Wealthy families have to stay informed about new laws and tax regulations. They adapt and adjust plans accordingly. Regardless of your income level, you should follow suit and adapt by staying informed with the laws surrounding tax regulations.

Preparing the next generation:

Rich people don’t want their money to be blown – there is some evidence to show that by the third generation, inherited wealth ends up squandered. You too, can avoid having your money (and estate) squandered by emphasizing the importance of your heirs (and their children) about managing their money, consistently educating themselves on changes to the laws, and learning how to spend money wisely.

You can start this entire journey by creating a Will, Power of Attorney or a Living Will for yourself. You can start here. Wealth succession is a complicated journey that goes beyond the transfer of financial assets. You have to balance your assets, estate, family relations, philanthropy, etc. Managing all of this almost appears to be a full-time job. You can learn from wealthy families by making sure that your own heirs are up for the job.

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