Advice to those who inherit a windfall

They’ve been dubbed the trillion-dollar generation.

Who are they? They’re the thousands of baby boomers poised to inherit the largest inter-generational wealth transfer in history.

Not known for their frugal ways — nor for saving — it’s fortunate for many of this generation that this financial boost is at hand. While they may not have saved, thank goodness their parents did. Mom and Dad (grandma and grandpa) lived through the Depression and survived into the great real estate run-up of the 1970s and 80s. So, if they did little more than buy a house and live relatively modestly, they’ll likely bequeath their boomer children inheritances of six digits and up.

A word of warning: Handle with care
Financial planners and investment advisors are seeing a growing number of boomers coming into money without having the slightest idea of how to handle it. While an inheritance can bring relief from immediate financial worries, to the alarm of many professional money managers, a large number of boomers are letting the money slip through their fingers. Perhaps it’s not so surprising — after all, there’s an enormous pent-up demand fonew digs, flashy cars and other expensive toys in the aftermath of the recession. But the inheritance of a nice chunk of wealth calls for exactly the opposite… restraint.

What’s the first thing to do if you’re fortunate enough to receive a nice bequest? Absolutely nothing, according to the experts.

Put the money into a bank or money market mutual fund and then stop and think about how best to handle it.

“I tell people not to do anything for the first year,” says Emily Card, a Los Angeles attorney and co-author of a book called Managing Your Inheritance. As Card says, inheritances take many forms — cash, stocks, mutual funds, property — almost anything. It takes time to understand their value and appreciate their potential before making major lifestyle changes.

Show a little restraint
An inheritance comes with emotional baggage that can affect judgements and decisions — there’s pain and grief from the loss of a parent, sometimes even marital strife. For instance, if the bequest is from the death of one spouse’s parent, it may spark an attitude of “It’s my money and I’ll decide what to do with it.” Lastly, the financial experts warn boomers to evaluate what impact the money can have. What may look to be an enormous sum could turn out to be surprisingly small if you try to live on it. If you dip into your capital, even $2 million doesn’t put you on Easy Street, particularly if you’re only 30 or 40.

But just because you shouldn’t live on it now doesn’t mean a bequest won’t make a difference in a few years. A $50,000 lump sum invested at 10 per cent will become $100,000 in about seven years.

It takes a long time to amass that amount in today’s economic climate.

The key point: A little restraint now will ensure a nice payoff for your financial future. Recommended reading: You Can’t Take It With You: The Common Sense Guide to Estate Planning for Canadians by Sandra Foster (John Wiley & Sons, $21.95)