Is it Appropriate to Talk to Mom or Dad About Your Inheritance?

Getting an inheritance is a sensitive subject. The donor or benefactor (the person giving the inheritance) likely cares about the donee (person getting the inheritance). Otherwise they wouldn’t be making the gift. Unfortunately, typically, an inheritance is made when the donor dies. Most people do not like to think about their own death. But if the donor brought up the subject, that means the donor is willing to discuss the matter. If the person giving the inheritance is ready to discuss the practical implications it is a good opportunity to do some estate planning. You should start to prepare for an inheritance.

What Are the Practical Implications of Getting an Inheritance?

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What questions you should ask when you prepare for an inheritance.

The practical implications of getting an inheritance are legal and financial. Those two areas overlap. Creditor protection and asset protection are legal issues. For instance, is the person getting the inheritance about to go through a divorce? Or going through a divorce? Do they own their own business? Are they in a high risk profession? Do they have partners? What about debts? Does the person getting the inheritance have large debts? How old are they? Can they manage money? Do they have kids who are about to apply to go to college? Do they have enough money to retire one day? Or is this inheritance a nest egg for their retirement? How long does this money have to last them? All of these questions are going to dictate how you should get or prepare for an inheritance.

Other Tax Issues of Inheritance

The other issue to be aware of is capital gains taxes. If you are given property during the life of the gift giver, you get their cost basis. Investment decisions are also financial. For instance, how should the inheritance be invested? What are the short term financial needs of the person getting the inheritance? What are the long term financial needs of the person getting the inheritance? Retirement? College tuition? A new business venture? A good financial advisor, and financial planner can project what your income needs are likely to be. They can show you how much you should save and invest, and how much you can afford to spend.

A virtual Family Office can make a plan that deals with all these issues and help you prepare for an inheritance. You can put together a team of people to handle the legal, financial and tax aspects of getting an inheritance. 

How to Plan for An Inheritance? Do What the Wealthy Do

If you’re getting an inheritance, you should prepare by meeting with the appropriate advisers. When you’re expecting an inheritance, to reduce adverse tax impact, to get asset protection, and to properly invest your inheritance you need an estate planning attorney, an accountant, and an investment adviser, or certified financial planner. You may also need to speak to an insurance professional. These people form a team. That team is called your virtual “Family Office”.

How Do You Keep and Grow Your Inheritance?

What is a Family Office? The Rockefeller’s are credited with creating what is called the Family Office today. It was something invented by the very wealthy out of necessity. These folks realized that if they didn’t get good advice, at the right time, they would not remain wealthy for very long. They realized that there are predatory people looking to take advantage of people getting an inheritance. They also realized that the people in the family may not be experts on managing their own money.

The families that have managed to maintain and grow their wealth did so by learning that managing the family money required knowledge and expertise. So, family’s such as the Rockefellers and others hired full time professionals to manage their wealth. These full time teams became known as the “Family Office”.

Getting the Right Advice About Your Inheritance is Just Smart

The important thing to realize is that you need this kind of advice even if you are not ultra-wealthy. In fact, if your estate is modest, it is even more important to get good advice about asset management. Why? Because if you suffer a big loss or a hit to your wealth, you are less likely to recover. What would be the impact on your life if you suddenly lost 50% or more of your inheritance?

An extremely important factor is asset protection. If your father or mother or grandfather or grandmother is going to leave you an inheritance in their will, you may want to talk to them about setting up a trust instead. The most secure kind of trust is a third party irrevocable trust.

Trusts to Protect and Grow Family Inheritance

Our firm sets up LifeCounsel® LOT(sm) trusts for parents and grandparents interested in giving the gift of asset protection to their children and grandchildren. If you’re getting an inheritance you should seriously consider the benefits of a third party trust. Our LOT trusts allow you to have a great deal of control and flexibility in managing trust property, while at the same time enjoying creditor protection. For instance, if you get divorced, would you want to lose half of your inheritance to your ex-spouse? Do you realize that having money will cause colleges to quote your child a higher tuition rate than if you didn’t have that inherited money? If you’re in business and get sued, once you have your inheritance it is probably too late to protect it. Discuss a LifeCounsel® LOT(sm) with Jesse Bifulco to prepare for an inheritance. 

That is why it is extremely important to talk to the person leaving you an inheritance. See if they’ve spoken to an estate planning attorney about the benefits of a LOT trust – that is a third-party trust for your benefit rather than simply leaving you an inheritance in an unprotected fashion.

And Yet, People Still Ask If Their Inheritance is Large Enough to Justify Making a Trust

It never fails to amaze me that people do not realize that they don’t need a million-dollar inheritance to benefit from a trust. I teach an asset protection class every week. And when I mention the use of trusts in estate planning, there is almost always someone in attendance who says, “I don’t have that much. Why do I need a trust?” And sure enough, when you look over their asset list, they’ve got 4,5,6 or seven hundred thousand dollars inheritance. Of course, their inheritance could be protected by a well drafted and maintained estate plan. They can avoid many actual risks using a properly drafted and maintained LOT(sm) trust.

The benefits of these trusts are important to folks with many millions of dollars and also folks with many hundreds of thousands of dollars.

To Choose Protection You Need to Know it Exists

Given the choice, most will choose to preserve their inheritance. But if you choose the wrong advisers – the wrong attorney, or the wrong accountant, or the wrong financial adviser, you won’t know. You won’t have a choice. Everyone wants to preserve their inheritance for their use and their family’s use rather than suffer a loss that could have been avoided. Many of the losses described in this article can be avoided. But only with the proper advice. Only with a plan can you properly prepare for an inheritance.

The Right Way to Do Your Inheritance

Prepare for an inheritance

While that logic may seem obvious, it is amazing to me how few people get professional advice when they’re about to get an inheritance. Family Offices are for people who have such a large amount of finances that it makes sense for them to have a full-time staff of experts to help them manage their money. The Family Office concept has evolved since its ultra-wealthy beginnings. Yes, there are wealth management firms that cater exclusively to ultra-wealthy families. There are also families that have Family Offices of their own. But there are also excellent qualified professionals who can provide anyone with a plan to preserve and grow their inherited family wealth. A good plan for your inheritance avoids unnecessary loss of assets, and works to prevent unnecessary family conflict over the use of that inheritance.

How to Put Together a LifeCounsel® Family Office for You Inheritance

If you’re getting an inheritance you need to put together your own virtual Family Office. At Penbay Estate Planning Law Center, we put together virtual Family Offices for our clients every day. One of the jobs of an attorney is to identify a client’s needs. Once those needs are identified, the next step is to know who can meet those needs. In estate planning the attorney’s value is more than their knowledge and experience. The estate planning attorney needs to be able to identify and obtain the right allied professional for the client. Who are the “right” allied professionals? We’re talking about people with the appropriate expertise. We’re also talking about people who have proven to be trustworthy. If you consider how many plumbers, or electricians, or mechanics or other service and trades people you went through before finding the right ones, you understand the value of getting the right one the first time.

Here are some tips to help you find the right people and get the right inheritance advice.

Beware Professionals Giving Advice Outside of Their Field or Specialty Area

In general, beware of folks who go outside of their field. For instance, an attorney who tells you what to invest in. Or an accountant who tells you to use a will. Or a financial adviser who tells you that a (POD) pay-on-death is all you need as far as an estate plan. Or an investment adviser who tells you that you cannot use a trust for your IRA.

The Right Inheritance Accountant

In the example of the accountant or CPA who advises you about your will, remember a will is a legal document. A CPA or accountant is not qualified to advise a client on what the appropriate legal document is to execute their estate plan.

Do They Advise Beyond Their Field?

The temptation for any trusted adviser when giving advice about an inheritance, is to advise the client beyond their capabilities. As someone in a position of trust I know of this risk. I know that I have been tempted to do that. But over the many years of practice, I have gained the wisdom to know what the limits of my ability are. Also, it has been my job to find the right experts for my clients.

But Things Can Go Wrong

Unfortunately, I have seen the adverse consequences of other attorneys, investment advisers and accountants who have not known when to get another professional involved to help advise about an inheritance.

The Temptation for Any Adviser

But why might an Investment Adviser give legal advice? There are many reasons this happens. One reason is that the adviser may genuinely be concerned for the client and be unaware of their ignorance. They may not realize how complex the law is.

Another reason, and the one I find most often, whether it is an attorney, a CPA or Investment Adviser, is that the adviser has worked hard to earn the relationship with the client. When presented with a question they don’t know the answer to they are tempted to answer it themselves. If they are confronted with the prospect of another adviser between themselves and the client, either consciously or subconsciously, the adviser wishes to keep control of the situation. They don’t want to take a chance of losing the relationship.

If you’re getting an inheritance, and you have a trusted adviser, ask yourself, is that adviser qualified to give me the kind of advice I need? Or is the adviser trying to keep control of the relationship? Does the adviser readily submit to meeting with or speaking to other allied professionals? Or do they say that you don’t need to talk to anyone else? If they tell you you don’t need to speak to an estate planning attorney about your inheritance, it is a sign that they are not giving you good advice.

How to Find the Right Advisers When You Are Expecting An Inheritance

Does the CPA or accountant ask you detailed questions about your estate each year? This is a simple test for your accountant. Did the accountant find out in years past whether you needed additional advice? You will need good accounting advice. But your accountant may not be the right person for the job. You want to find out if the CPA or accountant is proactive. With simpler assets, there may not be ways to reduce your tax liability. However, if the CPA or accountant does not take the time to find out your situation, they can’t make good suggestions about how to reduce your exposure to taxes.

• Do they send you an annual or quarterly questionnaire?
• What questions does it ask?
• Do they ask you if you expect to get an inheritance? Has the CPA suggested that you get an estate plan?
• Is Your Trusted Adviser a Team Player?

Estate planning is a team sport. Remember, the ultra-wealthy Family Office is not made up of all accountants. There are other allied professionals as well. There is a reason why some folks manage to grow their inheritance and others do not. As an estate planning professional, I have seen this many times. When you already have a trusted adviser, such as an accountant or CPA, investment adviser or general practice attorney, sometimes they’re jealous of their influence over you. If your professional adviser does any of these things, it is time to start looking for a new one:

The accountant or financial adviser who gives legal advice.

An accountant or financial adviser are not qualified or licensed to give legal advice. If you relate an issue to the accountant or financial adviser that is primarily legal and the accountant or financial adviser attempts to advise you on the law, or legal proceedings, you should beware.