More Money – More Problems

September 14, 2016

I have had numerous new clients recently inherit a substantial sum of money and tell me they wish they could give it all back. They feel overwhelmed. They feel that more money causes more problems and more complexity.

It is true – the more money you have the more you should plan. Think of it like a garden. The bigger the garden, the more organized it should be and the more time you should spend taking care of it. Just like your money, the more you have the more reason you should have an estate plan in place and more insurance you should get to protect your estate. So, if you find yourself in sudden wealth here are the 4 areas you should evaluate and ask yourself some questions:

1. Evaluate your new financial position
Just how wealthy are you? You’ll want to figure that out before you make any major life decisions. Your first impulse is to go buy things, but that may not be in your best interest. Answering these questions may help you evaluate your short and long-term needs and goals:
-Do you have outstanding debt that you’d like to pay off?
-Do you need more current income?
-Do you plan to pay for your children’s education?
-Do you need to bolster your retirement savings?
-Are you planning to buy a home?
-Are you considering giving to loved ones or a charity?
-Are there ways to minimize any upcoming income and estate taxes?
It is important to not make any major decisions until you sit with your new wealth for a number of months and come up with a plan.

2. Impact on investing
What will you do with your new assets? Adding a substantial amount of money to your portfolio could dramatically change your allocation as well as have an impact on your investing.
-Do you have enough money to pay your bills and your taxes?
-How might investing increase or decrease your taxes?
-Do you have assets that you could quickly sell if you needed cash in an emergency?
-Are your investments growing quickly enough to keep up with or beat inflation?
-Will you have enough money to meet your retirement needs and other long-term goals?
-How much risk can you tolerate when investing?
-How diversified are your investments?
You may want to take your new wealth and put some away by locking it up in a secure income stream for yourself in the future. Or you may want to take the opportunity to be more aggressive with your newfound wealth. The biggest thing is to not rush into anything and make sure you have a plan in place.

3. Impact on Insurance
You may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. However, maybe you now can cancel some of your life insurance and save yourself some cash flow since you can pay off all of your debts and don’t have a need for the insurance. You may want to only take out life insurance to cover your estate taxes. It all depends on what this inheritance does to your net worth and your financial situation.

4. Impact on estate planning
Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family. You may need a trust. At a minimum, update your will and get a Power of Attorney and Health Care Directive if you don’t have one already.

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