How to Plan for a Potential Inheritance – Twin Cities

The amount of wealth that Millennials and Generation Households transfer to younger generations.

Inheritances are not just for the rich: less than half of the total transfer volume is expected to come from wealthy households.

“This is a really unique time in history because of the size of the assets,” says Chayce Horton, senior analyst on Cerulli’s wealth management team. “This is something we’ve never seen before.”

Because of this magnitude Inheritance recipient Maybe you don’t know what to do with one and whether to expect the windfall before it arrives.

If you’re wondering whether you should discuss the topic of a potential inheritance with your own parents or grandparents, here are some guidelines that financial experts recommend:

Talk about inheritance early on

“If parents haven’t discussed it with you, you need to discuss it with them,” says Isabel Barrow, director of financial planning at Edelman Financial Engines, an independent financial advisory firm. “We know that if you don’t talk about it beforehand, there will be problems.” She says these can include arguments between family members, confusion about what to do with the money, or even uncertainty about where to get the most current version of a person’s will family member can find.

Barrow suggests broaching the topic while the whole family is together for a holiday or birthday and everyone is in a good mood. “This might be an opportunity for you to just mention, ‘Hey, I’m doing my financial planning and you suggested I talk to you about your plan,'” she says.

Mitch Mitchell, product advisor at Trust & Will, an online estate planning company, says it can be helpful to tell your parents that you’re trying to plan for something that will be difficult for you. He suggests saying something like, “It would be a gift if you could figure this out.”

Respect cultural differences

Some cultures and generations are less comfortable talking openly about money than others, says Leo Chubinishvili, a wealth advisor at Access Wealth in East Hanover, New Jersey. Respecting these differences can help you avoid unnecessary tension and discomfort. “It depends on your family’s cultural environment and your upbringing,” he says.

While Chubinishvili says everything Families should talk about money In some ways, some families may need longer to familiarize themselves with the topic or may benefit from the help of a financial professional leading the conversation.

Make sure the money is safe

Another benefit of talking to your parents about a possible inheritance is that you have the opportunity to offer help should they need it. “All parents should begin disclosing assets and accounts to their children for several reasons, but most importantly for safety reasons,” says Walter Russell, managing director of Russell and Associates, an investment firm in New Albany, Ohio.

“As parents get older, they may forget an account,” says Russell, and seniors are also targets for scammers. Knowing more details about your parents’ finances will make it easier to spot discrepancies and help Keep your money safe.

Plan to spend it wisely

Whether it’s $5,000 or $500,000, an inheritance can open up opportunities you hadn’t previously considered, like a vacation or a dream home. However, financial experts recommend focusing on less exciting financial expenses first, such as paying off debt and accumulating savings.

“You can start cleaning up your financial house once you’ve paid off your debts and built up a good emergency fund with six to 24 months’ worth of living expenses,” says Barrow. She then suggests thinking about medium- and longer-term financing Goals around housing, cars, education and retirement. She adds that using part of an inheritance to celebrate a loved one’s life in some way, be it a trip or a nice dinner, can also be a way to honor them.

Don’t rely on it

“The market could turn, the family business could go bankrupt. You don’t want to plan your retirement or all of your financial planning around that inheritance,” says Laurie Smith, a partner at Wiss, an accounting and tax firm in New Jersey.

There is also the possibility that your parents will need the money during their lifetime. “What if in 10 to 15 years a parent had dementia and had to go into a nursing home? You’re talking about more than $200,000 a year that parents may have to fork out. Or your parents may choose to leave their money to their favorite charity,” says Barrow.

In other words, an inheritance is never guaranteed. That’s why it makes sense to talk to your parents about their plans while making sure that your long-term goals – such as saving for retirement – are not based on a windfall, as one may never come.

This article was written by NerdWallet and originally published by The Associated Press.

Kimberly Palmer writes for NerdWallet. Email: Twitter: @kimberlypalmer.

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