Death is a fact of life, but I swear I’ve never seen it celebrated so much as when there is a lot of money on the line. Some relatives get downright ghoulish waiting for the wealthy one to pass. They just know that the money is coming their way and they are salivating over it. They start making plans for what to do with the money and sometimes even flaunt those plans in front of the dying. (Note to all of my relatives: If any of you do this over my deathbed, I will cut you out of the will immediately.)
Even people who aren’t eager for the wealthy relative to die are sometimes guilty of planning for that inheritance. I know a woman who saves nothing today, instead choosing to live a luxurious, debt-riddled lifestyle that she cannot maintain on her salary. Her rationale is this: “I know I’m going to get millions from my mother, so when that happens I’ll be able to pay all of this off and have plenty left over.” There’s a lot wrong with this philosophy, but let’s start with the obvious and the first point I want to make about inheritances.
Don’t spend it until you have it
A lot can change before someone dies. Maybe they get sick and use up all of their money paying for care. Maybe they decide to leave it all to charity, or to the cat, or to your less greedy sibling. Maybe they decide to go nuts and travel extensively, buy luxury cars, and live the life they always dreamed of. There’s no rule that says the money has to go to you so until the person is dead, the final will is read, and all of the taxes are paid out and debts settled you don’t know for certain that you’re getting anything.
Besides that, you don’t know for certain that the money is even there. Unless grandma has done a detailed accounting of her finances with you, you cannot assume that she is as rich as you think. A lot of people live flamboyant lifestyles on credit. They look rich on the surface, but underneath that glittering exterior is a pile of debt that has eaten up all of the available cash. Then, too, there are relatives that talk about money that was either never there, or was spent/lost long ago. Sometimes as people get older or medicated, they don’t remember things clearly. You may be banking on money that was lost thirty years ago.
Whatever the case might be, banking on an inheritance is a foolish financial plan. You don’t control any of the process, so it’s a little like buying a sports car with the intention of paying it off after you win the lottery. What happens if you never win? You need a financial plan that you can control. If you are fortunate enough to ever get a large inheritance then you can start to spend it, but not before. Which brings me to point number two about inheritances:
When you have it, wait to spend it
If you get that big inheritance, your first plan might be to skip down to the car dealership and buy that Maserati. Hold on a second. The best thing you can do when you come into any large sum of money is to wait and think for a while before doing anything rash.
You need to let your emotions settle down before spending an inheritance. Park it in a CD or savings account while you work through your grief, rage, joy, or whatever emotions the death of your relative has left you with. Emotional spending leads to regrettable purchases. This is why so many lottery winners end up broke within a year. They get on that high of winning and think of the money as almost unlimited. They give to everyone who asks and they often spend frivolously. When your emotions are out of control, you’re also more likely to fall prey to scams because you’re just not thinking straight. Get yourself on an even keel before you spend and seek counseling if necessary. If anyone asks about the money, tell them that you haven’t made any decisions yet and that you will contact them later.
Once you’re in a stable place, then you can think about what to do with the money. Were there any formal conditions placed on it by your relative, such as using it for education or a home purchase? If so, you need to work within those parameters. If there were less formal agreements made, you have to determine whether you still want to do as your relative wished or strike out on your own. If the money is yours to use free and clear, do you want to use part of it to honor your relative (such as with a charitable donation or a scholarship), make up for something bad that they did to someone else, throw it away out of spite, or do you want to keep it for yourself? Consider the tax implications of what you do with the money, as well.
There’s a lot to consider. Until you are certain about how you want to use the money, just keep it in a safe place. If you blow it, you can’t get it back and the regret will haunt you. You want to do what you feel is right in the end, not what your emotions drove you to do.
Inheritances are complicated things. So are families, which is part of what makes inheritances tricky to deal with. Maybe you desperately want the money, but you don’t want someone to die for you to get it. Maybe you end up disappointed and resentful when the money you were counting on doesn’t materialize. Maybe you did want this person to die and now you feel terrible about taking their money. It’s an emotional minefield. No matter how complicated it seems, though, you can simplify things greatly by first not spending any money before you have it and, second, waiting to spend any money you receive until you are sure what to do with it. Those two things alone will make any inheritance easier to deal with.