Many people rejoice when receiving a bountiful inheritance. Whether their advisors are equally ecstatic frequently hinges on one question: How the windfall will impact the clients financial discipline and long-term planning.
A clients actions, advisors say, will depend in some measure on the inheritances size relative to existing assets. An individual of modest means, notes Steve Zimmerman, a partner at Zimmerman Financial Group, Apple Valley, Minn., will tend to view a bequest of $100,000 more seriously than the high-net-worth client whose assets are valued in the millions of dollars.
Age and emotional attachment to the dead are also considerations. Producers observe that many boomers become more conservative as they edge closer to retirement, regardless of the prospect of an inheritance. Many also feel obligated to honor benefactors by wisely managing passed-on assets.
Some folks, to be sure, move in the opposite direction. Gary Rathbun, an advisor with Private Wealth Consultants, Toledo, Ohio, points to several clients who quit their jobs and quickly burned through inheritances, leaving themselves in a financially precarious position. Rathbun says he has little tolerance for those who are financially irresponsible.
“Sometimes you have to shock [the client] and say, If you keep down this path, in two years youre going to be broke. Now, let me explain what broke is. When they dont respond, Ill tell them, Look, you need to work with somebody else, because Im not going to oversee a downward spiral.
“People have this image of living like Paris Hilton,” he adds. “They think they have an ungodly amount of money that will never end.”
Many boomer clients also make incorrect assumptions about an inheritances size and disbursal date. Often, advisors say, clients dont count on aging parents still in possession of assets to bequeath living as long as they do and many automatically assume that parents will predecease them.
Or clients dont factor in unanticipated liabilities that can drain the inheritance: estate taxes, medical expenses, or the long term care needs of elderly parents. For all these reasons, observes Rathbun, advisors should counsel boomer clients not to incorporate an inheritance into their financial planning.
“I can give story after story where people didnt die in the order they should have or where the [inherited] resources were used up taking care of Mom,” says Rathbun.