Sort Out the Emotional Issues in Your Inheritance

Inheritances rarely are just about money. That’s the first thing those who receive financial windfalls should realize, said Stan Hargrave, a certified financial planner in Riverside who often handles inheritance cases.

Along with countless questions about what to do with the money, Hargrave said people with inheritances often grapple with grief, resentment toward other inheritance recipients, guilt over prospering at someone else’s expense and other complicated emotions.

“The first thing you have to be aware of when you receive an inheritance is your own psychological baggage,” said Hargrave, also a UC Riverside professor in the management program. “You need to figure out why you feel you need to be sensitive with this money and what emotions are linked to the money. You need to pay attention to the psychology.”

Two common ways to lose an inheritance are to use it up quickly on consumer items--vacations, cars and gifts--or to use it to launch a small business that eventually fails. But investing in bank certificates, stocks or bonds is not the only option. For example, getting yourself out of debt or paying for an education may be the best way to use the funds.

“My belief is that no matter how much one inherits, you should park it somewhere safe for a while, a CD or a money market, so you have time to go through a grieving process,” said Myra Salzer of the Wealth Conservancy in Boulder, Colo. “You have to disconnect your emotions to the money, and that can take time.”

Salzer recommends not touching the money for at least a year. But Hargrave said the timing depends on the individual. “Some people take years to decide how to invest their money, others take a few months,” he said. “You have to go with whatever feels right.”

For those unfamiliar with equities and other investment options, Hargrave recommends taking the time to learn.

Experts say that, before investing any money, people should keep their inheritances in their own names, rather than in joint accounts with their spouses. Although it can be a touchy subject, it’s a wise legal move, because if the money is commingled, it will be regarded as a shared asset in a divorce, Hargrave said.

People also need to pay attention to the tax burden of their inheritances, as well as their investments, Hargrave said. Under current law, estates valued in excess of $650,000 are subject to taxes.

And regardless of estate size, beneficiaries should keep in mind that any gains on their investments will be taxed. A large inheritance can permanently increase your marginal tax rate.