A number is thrown around a lot when the amount of money that will be passed down in the coming generation in Canada is estimated – $1 Trillion they say over the next 20 years. Right now the average inheritance is just over $100,000 but it is expected to swell to $300,000 in the coming years.
While these numbers may seem interesting, they don’t matter to you. What will matter to you – and why you might be reading this post – is what will you get, and when once received, what should you do with it? I have assisted many clients who came into ‘sudden money’. In some cases it was an inheritance, but for others it was a court settlement, lottery, or a property or business sale.
The best advice for anyone coming into sudden money is this – do nothing. Rest on it for a few months as you weigh all of the options available to you.
For those who have never managed a large sum of money it can seem daunting. You might even notice the proverbial sharks circling – wanting to profit themselves from your windfall –particularly if the sudden money is known to several others.
So, after deciding to do nothing for a few months, make a list. Write down all of the things you would consider: pay down the mortgage, eliminate other debts, buy a car, help out the kids, take a trip, build a deck, finish the roof, buy an island, whatever! Don’t judge the list, just make it.
The next few months will be a time for creating decision criteria, reflecting, thinking about what your loved one would want, and slowly dropping a few things from the list. Inheritances often come with feelings, and a desire to do the ‘right thing’ with the money that now represents some of what your loved one was able to accumulate through their life’s work. Blowing it all on short term ‘fun’ may not feel quite right in a year or two.
Continue to tighten the list, and once you’re happy with the things you want to do, run your decisions by someone whose opinion you trust. Listen to their feedback, and be open to their suggestions – they may be more objective than you at this point.
For inheritances, I love mortgage and debt reduction, investing in children’s education, and doing something to honour the one who passed. This could be a donation to a charity or religious organization that was meaningful to them, or purchasing something to remember them by. My wife and I took a trip to my grandparents’ favourite vacation spot when they were gone, and it was memorable in many ways.
So if or when you receive a significant inheritance: be thankful, do nothing, make your list, run it by someone you trust and then do it. You’ll have no regrets if you take the appropriate time, and avoid the pitfalls that result from emotional or spontaneous financial decisions.