Inheriting a significant amount of money can be a confusing and overwhelming experience. There are many important decisions to be made quickly, including what to do with the money. If you are in this situation, consider hiring a financial advisor.
Financial advisors will provide their clients with personalized guidance on how to invest their inheritance so that it can grow over time to meet their future needs.
Large inheritances can be a source of stability and financial security, with only 21% of Americans receiving one. If you do receive an inheritance, make sure you are fully prepared for the liability and complications that come with it.
Financial advisors can offer advice and guidance to clients preparing for retirement. The tips below can help consultants save time and be more efficient in the process. The above four points are designed to help you understand the importance of managing your expectations and reality. They are also designed to save your customers a lot of time, money and headache.
Expectations and Reality
Managing expectations beforehand can go a long way in laying the groundwork for how you and your client handle inheritance. Your customers may not have their eye on a specific figure or know what to expect. Though according to the 2019 Consumer Financing Survey, the average inheritance ranges from $76,200 to $92,700.
People who are saving for retirement often expect to get a big payout, but it’s important to talk about how the money might not go that far during this time. For example, expenses may be higher because retirees are used to eating out and stopping at a club for happy hour after work.
For example, the national average cost of a private room in a nursing home was $108,405 per year. If you are paying $61,776 per year to an on-campus janitor and he/she cares 44 hours a week, the hourly wage would be around $15.
The AARP estimates that cancer treatment costs about $150,000, while, on the other hand, an individual with dementia spends on average more than $415,000 in the last 5 years of their life.
How to divide an inheritance
All that’s left for your client to do after the inheritance arrives is to contact you and make sure they understand what they have. Knowing the composition of someone’s assets is very important, as an inheritance can be real estate, investments, jewelry, life insurance or even a business that is still in operation.
In many cases, clients are unaware of the true value of their heritage and don’t know what to do with it. Partnering with a financial professional is the best way to ensure your client understands how much they’ve inherited and how to invest.
Reduce your customer’s tax burden
Whether it’s a gift or an inheritance, you need to know the basics of how much tax you’ll pay. If what you are receiving is considered income, you will pay inheritance tax. There are a few ways to reduce your taxes:
Inheritances are generally not considered income for federal tax purposes, but some states – Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania – impose a tax. For example, if you inherit money from someone in the state of Iowa who died in the year 2017 and that person leaves nothing to his or her spouse or children and does not have a gross wealth of $3.5 million or more. Inside
If your client inherits more than $12.92 million in 2023, you may need to consider the idea of inheritance tax. This change in law will have occurred at some point and will not be part of the current circumstances. Therefore, you will need to inquire about this new development before writing the will.
Your client could be facing other tax consequences if they are not careful. For example, they might sell a large portfolio of stocks he inherited to get funds quickly.
But realizing a capital gain can mean incurring a heavy tax liability. Unless the customer intends to pay the government a chunk of their newly acquired money today, you might want to advise them not to sell prematurely.
Keep an eye on your customer’s needs
Successful estate planning is a delicate process that can be facilitated by educating the client and discussing their goals for the estate. It’s important to educate your clients on how long it will take for them to spend an inheritance, how they can best spend it, and what some of the risks are associated with an inheritance.
You might never have considered this before, but now is a good time to take a look at the option. Things have changed so it’s worth considering now. How has your client’s equity helped them throughout their lives? Did it allow them to achieve any of their personal goals? What are the things your customer would like to do with their money?
Once you’re both committed to an idea, take the time to explore different ways to use inheritance. Just remember that there is no need to rush or make hasty decisions. Trust me when I say this can easily creep into your life unexpectedly and in many cases irrationally.
Let’s say a close family member has passed away. This can leave your client with a hefty life insurance policy that was unexpected. They may need some time to grieve before planning what to do with the money.
Manage your debt
The first thing you and your client must do is look at your client’s debt. Typically, paying off debt is universally the smartest financial decision. The cost of paying off a loan can be broken down into three main parts: interest, principal, and any fees that may apply, such as late fees or extra fees. People often choose to pay the principal with a certain amount of interest and
Personal loan is an option for when you need money quickly. However, they come with a variety of conditions and may not be available to everyone. Mortgages are another option for anyone looking to buy a home or looking to borrow against the home as collateral. Ultimately, the type of loan that works best for you depends on your financial situation, but you can’t go wrong.
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