What should i do with my inheritance?

We have a big problem. Inheritance.

Did you realise we’re in the era of wealth transfer? Money is being passed from one generation to another. The pace of wealth transfer will only get faster over the next two decades.

Inheritance seems like a taboo in asian families. As children, it feels as though we’re unfilial and eyeing on the money, so we choose to avoid or bring up the matter. As parent, you may very well be the first generation to face this situation. It doesn’t help when our supposed advisors and bankers are also salespeople with conflict of interest.

Like it or not, at some point, somebody will have to face this situation. Inheritance management.

Question is, is it the Giver or Receiver?

I think this is an important topic to prepare and plan for because one generation spend their whole life building assets. It only make sense for the receiver to spend time preparing themselves for it.

At its core, Inheritance management is about appreciating and continuing the "legacy" of one generation while building a legacy of our own. With careful deliberation, we can do good, raise our quality of life and perpetuate a legacy.

This article is written for receivers and to provide some considerations

Background

The trigger for me to write this was because of a recent planning with a client, let's call her Jane. Jane is in her 20s and her parent passed away because of illness.

She inherited substantial asset in a phase where most of her peers are studying and have little sensing of finances.

Her inheritance management was very interesting because

1. Her age & lack of financial experience. What sets a minor and major apart is age. In reality, does being older and senior means we know how to handle money?

2. Her phase of life. She is still unsure of what she want for her life. Let alone what do with a windfall

3. She’s the only child, there’s little people with the competency to discuss this with

4. Foreign fixed assets, how to handle foreign properties?

5. Temptation to spend

Long story short, Jane liquidated most fixed assets and her big question was : What should i do with all the cash?

It really depends right?

These are the 3 directions you can consider if you’re in her shoes

1. Preserving the assets

You may be in a phase of life where you’re too caught up with work or unsure about life goals. Basically, you’re not ready. Some decisions can be deferred, some need to happen.

Under such circumstance, generally your best course of action is to preserve the value of the assets.

If it’s liquid assets like cash, that’s simple, place the money into instruments that hedge against inflation and buy yourself time. So you are looking at avenue that provides guarantees and have a return of 2-3% p.a.

Fixed assets are trickier. We need to make some decision. Let’s say a property, you have to decide if you want to rent them out or just let it be.

Financial asset like stocks are also tricky. Do you liquidate? What if market turn bad when you decide to sell in the future? What if market is bad and you’re holding on to stocks that you have not even heard of? What if you’re risk averse?

Do you think selling everything now and preserving the value makes more sense or betting on an uncertain value in the future?

Generally speaking, if you're unsure, your best course of action might be to preserve the value of assets until you're ready.

My question to you is, should you acquire these skill sets and thinking ability before receiving the inheritance, or after?

What skill sets do you need to manage your family’s legacy?

2. Grow the assets

Suppose you’re in a more mature financially. You’ve seen more things, know what you like and dislike. You know what you’re working towards in your life. This windfall may be a gift to expedite your journey.

You have some ideas and goals, what you lacked was the money.

The appropriate strategy here is to align the “new” assets to your goals. How much to where?

Your strategy is going to be more specific and targeted to allow your vision to come true, or cut short your journey.

For some, it could be financial freedom and you may consider allocating the money to generate investment income

For others, it could be charity, perhaps life insurance and nominate to an organisation like Temple or Church?

If you are clear with what you want in life. Your inheritance accelerates your journey.

My question to you is, what if all of your financial goals are achieved because of the windfall?

What’s next?

What do you grow your money for? It is necessary to take on risk if there is no more goals left? If so, should stocks be an option?

It's easy to say, i just want to have more money, c'mon, give it some thought!

3. Spend the assets

You may want to enjoy your wealth. Perhaps you have no intention for children, hence, little desire to perpetuate a legacy.

It’s fair isn’t it? Nobody to give, why not consume everything?

Your approach to inheritance management then becomes a sustainability question.

How long can the inheritance last?

Your consideration is : where can you place the money such that you can pursue the things you want in life without worry for depletion?

In case there’s a change of mind in future, how can you ensure the assets are there to help achieve your new life goals?

It’s unlikely that many people will fall into this category. But people here actually require more thinking and advice than to just park the money in the bank and spend. It’s easier to plan and advice if people have specific goals. It’s harder to plan if one has no goal. In fact there’s nothing to plan. Hence, the thinking process involves a lot of “what ifs”.

In Summary

I hope this article triggered some thinking. If i may suggest, these are some important and “good to do(s)” prior to receiving an inheritance

1. Get ready your counsel - Lawyer, Financial Advisor, Tax Advisor, Property Agent

2. Pick up relevant skillsets; stock investing, property investing

3. Identify unique inheritance problem within your family

In fact, have a conversation with your financial advisor. He/she is supposed to give you a financial advice isn’t it?

If you feel that the trust is not there yet, would it mean, some trust building is needed or source for another trustworthy advisor?

Lastly, if you like the article, please share it to help the idea reach more eyes and ears.

Thank you!

Appreciate your time reading my piece