We usually focus on topics, such as, being prepared for a financial event, financially preparing for divorce, test driving your retirement plan before you need it, or managing your fixed-income investments during rising interest rates. One financial event few people are prepared for is a windfall or an inheritance. What do you do when you are the beneficiary of a large sum of money?
The adage “from shirtsleeves to shirtsleeves in three generations” describes the failure to preserve family wealth for future generations. The cycle begins with the first generation receiving no formal financial training, yet working hard to provide financial resources for their children. The second generation benefits from their parents’ hard work and experiences some of the luxuries of wealth. This generation also has the knowledge to invest in the future for their own children. The grandchildren inherit the fortune and spend with little regard to the work that created the family wealth. The fourth generation is inevitably left with little to nothing, and again, is forced to work to make ends meet for their family.
Regardless of whether you inherit third-generation wealth or if you suddenly come into money via an unexpected windfall, you should do a cash flow analysis before you decide to quit your job, move to an exotic island or spend it on a yacht that will hold 100 of your closest friends. You must consider your long-term goals if you want your wealth to last.
Sudden wealth can greatly affect your tax liability, especially, if your inherited assets generate substantial income. You should seek a tax adviser to review your withholding or estimated payments. You may also consider transferring income assets to other family members or setting up educational trusts for your children and grandchildren. Another consideration is establishing a charitable foundation to gift assets that are tax deductible.
A substantial amount of wealth may also change your attitude toward investing. With more money, your risk tolerance may change. The ultra-wealthy are also given investment opportunities that may not be available to the average investor. If you are unfamiliar with sophisticated investment products, you should consult a financial professional that specializes in high-net worth families. The fundamental principles of preserving and growing your wealth for future generations shouldn’t change, but the diversity of your investments may.
With increased affluence, you should also examine your insurance coverage. You may be able to self-insure for disability or long-term care coverage. On the other hand, you may need to protect your wealth from lawsuits and insure expensive possessions. Jewelry or artwork may require separate policies.
Considerable wealth will also fundamentally affect your estate plan and how you share your fortune. The successful transfer of family wealth should begin during your lifetime if you intend to create a legacy. Bringing your children or grandchildren into the decision-making process with your financial adviser should ensure proper stewardship of a family’s wealth.
These concepts seem obvious to those who have an understanding of financial matters. However, you would be surprised how many people do not have the basics in place. Please add the needed basics to ensure your wealth is durable and long-lasting.
At Henssler Financial we believe you should Live Ready, and that includes consulting experts for financial matters you do not understand. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
