MONEY Ask the Expert

How To Pick a Trustworthy Manager for Your Trust

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: “I want to set up a trust fund for my son and grandchild, but I’m not sure who I should get to manage it? —Judy Gillis, Crossroads, Texas

A: Once you set up a trust, you’ll need someone to invest the money, maintain good records, handle taxes, and make payments to the trust beneficiaries. The person that takes on those roles is called a trustee, and your trustee (or trustees) could be a friend or family member, a financial pro, or even you, in certain cases.

Another option is a hybrid set-up: Name a trustee who administers the trust but hires an outside manager to invest the money.

Typically, the trustee’s powers come from the trust agreement you establish, and he or she is legally bound to follow your directions and act in the best interest of the trust. You can specify any rules you wish, such as how much income your beneficiaries should receive. Or you can let your trustee have more discretion based on the guidelines you lay out.

“Serving as a trustee should not be considered an honor. It’s a job,” says Greg Sellers, a certified public accountant and president of the National Association of Estate Planners and Councils. “You want someone you can trust implicitly with both the financial responsibilities of managing the trust and with carrying out your desires laid out in the trust.”

Here’s what to consider before you pick your trustee.

What Type of Trust Is It?

If you are setting up a living trust, which is simply a trust you set up while you’re alive, you can act as the trustee and keep full control of the trust’s management. This is the easiest approach. But if you don’t want to tackle this on your own, you can be a co-trustee or name a trustee to take over.

If you are creating a testamentary trust, which is set up in your will and established only after death, you will need to name a trustee.

How Big or Complicated Is Your Trust?

Choosing a family member to manage or co-manage your trust can be a good move for a small- to medium-sized trust. A relative won’t charge you a fee and generally has a personal stake in the trust’s success.

A corporate trustee such as a bank trust department, a lawyer, or a financial adviser will typically know more about trust management, investments, and taxes than a family member, so a pro can be a good choice if you have a large trust or complex assets in it. A professional trustee is also a smart choice if your trust will last for many years or generations.

Sellers advocates a middle-of-the-road approach with a relative acting as a co-trustee or trust protector, which is a person you can designate to oversee a trustee, alongside a professional trustee. This style means the trust will have both an advocate for the beneficiaries as well as an experienced manager.

A professional trustee will cost you, though. You could pay 0.75% to 2.5% of the trust assets a year. Typically, you’ll pay more if your trust is smaller, says Sellers, or if you have high-maintenance assets like apartment buildings within it. To get professional help for less, you could choose a relative as trustee and have them hire an investment company as an independent adviser rather than a co-trustee.

Who’s Right For the Role?

If you want to go with a relative or friend as your trustee, choose someone who is open to learning how to handle the money, who will seek outside help if they need it, and who gets along with the beneficiaries.

Once you’ve got someone in mind, talk with him or her about the role. You don’t want someone to accept out of pressure or feelings of duty when he or she lacks the interest or will necessary to perform the job well.

Sellers also advises against naming one of the trust’s beneficiaries to act as trustee. You want your trustee to manage the trust in the best interest of all beneficiaries and not have conflicting interests.

MONEY Estate Planning

When Tragedy Strikes a Young Family

hospital bracelet on patient
Fuse—Getty Images

A cancer diagnosis prompts a financial planner to reflect on the fragility of life and the importance of preparing for the worst.

I have a client who is 39. He’s married and has two young children. He has an extremely successful career. He and his family are really hitting their stride.

One day he started to feel unwell. Eventual checkups led to a diagnosis of cancer. His wife called me on a Saturday morning to discuss the shock of what they were going through, and to get some basic sense of what to expect next, financially.

There’s no way to prepare yourself for this kind of devastating news. Brené Brown discusses this eloquently when she talks about “foreboding joy” — the sense we sometimes have, when things are going well, that something terrible will happen to us or someone we love.

This mental rehearsal for the worst-case scenario doesn’t make it any easier when we get tragic news; instead, it gets in the way of our truly feeling joyful and present in the moment right now.

What can give us a lot of peace of mind is financial preparation — the knowledge that our families will be taken care of if something happens to us. Here are some important elements of that planning:

  • Life Insurance: If you have young children who are depending on your income, a good 20- to 30-year level term policy is a solid foundation to help support your family through the children’s school years.
  • Disability Insurance: Being injured or sick and unable to work is often more financially catastrophic than death, since your expenses have likely increased to deal with your treatment, but your income has gone away. A good disability policy through your employer or through a private insurer is great protection, since it will provide at least part of your income while you’re unable to earn a living. This coverage is more expensive than life insurance, since it is far more likely a person will become disabled rather than die early, but disability insurance has substantial benefits.
  • Emergency Fund: A baseline amount of cash is the protective foundation to any financial plan. This isn’t because cash is such a great deal, since returns in savings accounts nowadays are minimal at best. Emergency funds are a great deal because they allow us to weather financial storms — for example, covering waiting period before the benefits on a disability insurance policy kick in — and ultimately to take advantage of opportunities when they present themselves.
  • Wills, Living Wills, and Powers of Attorney: If you have young children, this is essential. The issue isn’t if you or your spouse die; it’s if both of you die, since those kids will inherit life insurance proceeds, retirement plan benefits, and more. If you and your partner both get run over by the proverbial bus, you need to make provisions for who will take care of your children. You should make that decision, and not leave the courts to decide if you’re not around. Living wills allow you to state your end-of-life choices; while never easy to carry out, they always provide a level of peace to families who know they’re carrying out their loved one’s wishes.

A few weeks later, I had lunch with this couple. The husband was about to have surgery. “If I don’t wake up,” he asked, “what’s going to happen?”

It was the best of a bad situation: He had insurance. They had an emergency fund. They had the necessary end-of-life and estate-planning documents. Were he to not pull through, his wife and children would be in a position to try to find a new normal. (In fact, he did pull through, and he’s working on his recovery.)

The most important thing for any patient with a long-term illness is to focus on his overall health and mental outlook. Having financial plans in place allows a patient to set other worries aside. He can tell himself, “In the worst-case scenario, my family will be all right. Now I can focus on ‘What can I do to be well?'”

All our days are numbered. The question is, can you be present for the time that you have? The right financial plan can ease the way.

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H. Jude Boudreaux, CFP, is the founder of Upperline Financial Planning, a fee-only financial planning firm based in New Orleans. He is an adjunct professor at Loyola University New Orleans, a past president of the Financial Planning Association‘s NexGen community, and an advocate for new and alternative business models for the financial planning industry.

MONEY Estate Planning

How Writing a Will Is Like Backing Up Your Hard Drive

computer hooked up to external hard drives
Peter Cade—Getty Images

In life as in computing, a little planning now prevents a lot of pain down the road.

Goodbyes are never easy, particularly if the relationship was a cherished one. Such was the case for me and my beloved hard drive. Its capacity for capturing great conversations, thoughts, and images felt irreplaceable. My heart sank as the computer technician conducted its last rites.

But thanks to technological advances, a mirror image of my hard drive’s legacy resided only a download away. The online backup reduced my anxiety and helped me resume my daily activities. Preparing for the inevitable allowed me and my hard drive to appreciate our time together and live life with no residual regrets.

How would life be different if we applied such a healthy, forward-looking mindset to our human relationships through estate planning? After all, as with hard drives, our limited shelf life requires that we make the most of each day while also planning for a peaceful transition. Having loved ones struggle with managing unorganized financial affairs with no assistance only prolongs grief and blemishes fond memories.

Unfortunately, a lack of an estate plan is common for many households. According to a 2012 survey by Rocket Lawyer, 41% of Baby Boomers and 71% of people age 34 and younger don’t have wills. Giving legal direction regarding your finances, property, and children upon your death takes the guessing game out such important matters. Who knows your desires better than you? Otherwise, you leave the courts to untangle your affairs at the expense of your loved ones.

Preparing a will requires that you name individuals who are responsible for settling your estate (executors), taking care of your minor children (guardians) and managing the trusts you establish for the benefit of others (trustees). Having an up-to-date list of your financial assets and liabilities, including digital accounts and passwords, helps smooth the settlement of your estate. (Some people prefer a living trust to direct their estate rather than a will, in order to avoid probate — a legal process that validates the will.)

Other important estate planning documents include a durable power of attorney, durable power of attorney for health care, and a living will.

Durable powers of attorneys (POAs) give another person the authority to manage your financial, personal or health care affairs on your behalf in the event of mental incapacity (brought on by such conditions as dementia or a terminal illness). Health care POAs should also include Health Insurance Portability and Accountability Act (HIPAA) provisions governing an individual’s privacy and access to medical records. A living will gives special consideration to your preference regarding medical treatments that may prolong your life.

Some financial assets and property transfer outside of the will. Financial assets such as life insurance and retirement assets transfer by beneficiary designation. Bank accounts and some investment accounts can transfer by establishing these accounts as a payable on death (POD). How property is titled determines whether the property is considered a probate asset or a non-probate asset. It is important to review these documents regularly to keep up with life changes such as marriage, children, and divorce, and to ensure that assets transfer according to your wishes.

Related:
10 Steps to Painless Estate Planning
Why You Need an Insurance Inventory

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Lazetta Rainey Braxton is a certified financial planner and CEO of Financial Fountains. She assists individuals, families, and institutions with achieving financial well-being and contributing to the common good through financial planning and investment management services. She serves as president of the Association of African American Financial Advisors. Braxton holds an MBA in finance and entrepreneurship from Wake Forest University and a BS in finance and international business from the University of Virginia.

MONEY Estate Planning

What Parents Can Learn From Philip Seymour Hoffman’s Will

Philip Seymour Hoffman
Victoria Will—Invision/AP

When it comes to deciding who inherits what, the law gives the dead wide latitude to impose a number of conditions.

On Tuesday, the will of Oscar-winning actor Phillip Seymour Hoffman was released to the public. In addition to dictating who would receive various parts of his estate, the document also contained a more esoteric request: that his son, Cooper, be raised in one of three cities—New York, Chicago, or San Francisco—to ensure that he would grow up in a rich cultural environment.

It’s an understandable request (and as a New Yorker, I’m flattered we made the list), but is it really legal to dictate where your children grow up after you’ve already passed on? And, more broadly, to what extent can one control their descendants’ actions post-mortem?

By law, Hoffman could not have ordered his child’s guardian to keep Cooper in a particular place. Gerry W. Beyer, a professor at Texas Tech University School of Law, explains that wills can do no more than transfer property from the deceased to their survivors. That said, there are plenty of ways the dead can use property to encourage (or, some might say, coerce) descendants into living a certain kind of life.

If you want to influence your survivors to do something—finish college, go to mass, take good care of Fido, etc.—the best way to do it is to promise them money on the condition they fulfill your request. For example, if you want to make sure your son takes his education seriously, you can leave him $10,000 on the condition he is admitted to a top-ranked college. If Junior knows too many late homework assignments could mean missing out on a huge payday, he’s probably going to hit the books.

Because the deceased have no obligation to give away anything after death, courts tend to give them wide latitude in how their wealth is distributed. The only clear restriction is that inheritance cannot be conditioned on an illegal act (kill the neighbor and you’ll get my car). Otherwise, the condition must simply avoid acting against “public policy”—it can’t encourage something the state doesn’t like—and defining what that includes is almost entirely up to an individual judge.

Ample room for interpretation can sometimes lead to controversial results. In a landmark 2009 ruling, a judge upheld the will of a Chicago dentist that denied funds to any of his grandchildren who married a non-Jew. Various family members sued, arguing the clause provided monetary incentive towards racism. “It is at war with society’s interest in eliminating bigotry and prejudice, and conflicts with modern moral standards of religious tolerance,” one (disinherited) granddaughter wrote in a brief to the Illinois Supreme Court. The verdict? Too bad. The judge found no reason why her grandfather could not choose to favor those descendants who followed his religious traditions.

According to Beyer, this type of decision isn’t uncommon. “This is something the court is doing in its equitable powers,” says the professor. “You can even find similar cases in the same state that go different ways.”

Highlighting this issue, the Supreme Court of Pennsylvania had previously ruled against a different will that also attempted to mandate religious observance. In that case, the document required a son to “remain faithful” to his father’s religion in order to receive any money. Unlike the Illinois case, this court found that the will contradicted the state’s Bill of Rights, which declared no human authority could interfere with acts of conscience. Does that sound inconsistent? Now you’re getting the hang of it.

Luckily, there are some relatively standard limits to what strings one can attach to their will. Beyer advises that courts will often use public policy arguments to deny provisions that are “manifestly unfair or unreasonable.” For example, a provision that would grant a person money for divorcing their spouse would be ruled invalid.

However, when it comes to the more contentious issues, there’s no telling how a case will turn out. Hoffman graciously chose to merely suggest that Cooper be raised in a cultural center, leaving the final decision completely up to Mimi O’Donnell, the mother of his children and inheritor of his estate. However, had Hoffman chosen to stake O’Donnell’s inheritance on keeping his son in a major city, Beyer says, the outcome would rest on the relevant court’s prerogative.

“Where you draw the line can be kind of fuzzy,” Beyer says. “People have done a lot of strange things.”

MONEY Estate Planning

WATCH: Why Philip Seymour Hoffman Didn’t Leave Money to His Children

Hoffman is just one of many wealthy celebrities and businesspeople who have decided against leaving trust funds for their children.

MONEY Estate Planning

Want Less Stress? Get Your Estate Plan In Order

Preparing the right paperwork will help ensure that your wishes are followed and may save your heirs a bundle of money.

After helping a girlfriend through the messy, tangled finances left in the wake of a parent’s death, John Kerecz had a message for his own mom and dad: Get your paperwork in order.

A few years later, Kerecz’s father passed away unexpectedly. The 52-year-old environmental engineer from Harrisburg, Pennsylvania went to the house and looked where his father and mother used to keep their important documents, but nothing was there. It was pure luck that he went to the computer to look up a phone number and saw a folder on the desktop labeled “DEATH.”

“Sure enough, everything was there in that folder,” Kerecz says.

Armed with a copy of the will, lists of the financial accounts and insurance policies and other paperwork, Kerecz was quickly able to settle his father’s estate and use the funds to take care of his ailing mother, making him extremely grateful.

The difference between having your files organized or not is about more than just stress; leave behind a mess and it can delay inheritors’ access to funds and cost a bundle in legal fees.

“It could be six months or longer if you don’t have the paperwork in order, and … your family is in the dark, not knowing things, jumping through hoops. It’s not a fun existence,” says Howard Krooks, president of the National Academy of Elder Law Attorneys.

Taking care of the necessary documents is a hallmark of good parenting, he adds, rather bluntly: “More than any kind of monetary legacy, if you really love them, you’d do this.”

HOW TO GET IT DONE

Compile a list of the financial information your heirs will need upon your death: wills, trust information, investment accounts, legal contacts, etc. You can keep this information in an electronic file – in one master document or several attachments – to serve as a road map to find all the physical paperwork.

Or, you can do what some of elder law attorney David Cutner’s clients do, and just pull out a cardboard box and start piling up the papers.

You have to do more than just gather the information, though, cautions Cutner, co-founder of the Lamson & Cutner Elder Law firm in New York. You have to tell your loved ones you have done it and tell them where to find it. You can either hand over the file immediately or keep it in a safe place (away from the prying eyes of caregivers and potential scammers).

A safe deposit box, by the way, is not a good place to keep these papers, says Cutner, because it’s too hard to access when needed.

THE WILL

Top of the list is a copy of your will, hopefully the most recent version, plus contact details for the attorney who drew it up and any executor named. Also important are trust documents, if they exist, estate experts say.

While power of attorney and living will documents are crucial should you become incapacitated, they will not be useful after your death, says Krooks—your heirs will then be using a death certificate to obtain access to accounts.

The real power in assembling all these items is that it forces you to go through the process of specifying your wishes. Without them, your family would have to put your estate into probate, which is when the state determines the distribution of your assets. This can take up to a year and eat up about 5% of the estate, says John Sweeney, an executive vice president responsible for Fidelity’s planning and advisory services business.

FINANCIAL ACCOUNTS

Your heirs will need to know all of your account information, down to your utility bills and your tax returns. You can either create a list or include copies of statements in the file, or just directions to where to find them. Also useful is a list of relatives to contact.

Knowing passwords for online accounts is not as important as naming another person on key accounts ahead of time, says Sweeney. This way, if the family needs to make mortgage payments or pay any medical bills, they do not have to wait until the estate is settled.

“Children are often dipping into their own assets to pay for taxes and mortgages when the last surviving parent has passed away,” says Sweeney.

In that same vein, make sure to sign another person up for a key to any safe deposit boxes or home safes, says Krooks. Include clear directions on how to access any other valuables that may be stashed elsewhere, so that it’s not mistakenly thrown out.

SURVIVOR BENEFITS

Pensions and insurance plans have many different payout rules, so you need to leave behind detailed information about policies. Insurance information should extend beyond life insurance to car, home and boat insurance, says Sweeney. It is also critical to include your Social Security benefit information, he adds.

The job of assembling all of this information can be massive, but most people appreciate it in the end.

“At first they curse us out because it’s so much to gather and put in one place. But by the time they come into the office, they’re really glad they did this exercise,” Krooks says.

MONEY Estate Planning

When Children Should Butt Out of Their Parents’ Finances

sliced dollar bill on cutting board
ersinkisacik—Getty Images

A financial planner explains how some adult children take too much of an interest in mom and dad's estate planning.

How many of us financial planners have had the privilege — or aggravation — of having a client’s adult children participate in a discussion of the parent’s finances?

There are good reasons for an adult child to be involved. A client may be aging or be recently widowed, and well-intentioned children may feel a responsibility to help mom or dad with money matters. And many of us financial planners encourage clients to include family members in important financial discussions, such as long-term care and estate planning.

But bringing the kids into a discussion isn’t always a good idea.

For example, let me tell you about a conversation I had with a client and his daughter. During an initially pleasant dinner meeting, it was revealed that dad had given money to the daughter and her husband to help buy some real estate.

The client then demonstrated a concern for fairness that I have seen with most parents: He turned the conversation to possibly reapportioning his estate among his children, taking this gift into account.

It’s in situations like this when family conflicts and tensions — the “mom always liked you best” grievances — usually become apparent. And this dinner was no exception. My client’s daughter didn’t have children. Like many adult children who are childless, whether or not by choice, they often see gifts go to grandchildren or to other siblings who are struggling to raise their families. Such was the case here. The daughter made it clear that she saw no need to equalize the estate because of the real estate purchase.

Meanwhile, I sensed my client’s uneasiness over the conversation.

Each family has its own own financial history — its own “financial DNA.” Every planner knows that very few things affect relationships in the way that money does. Some families don’t discuss money, but should. Some families fight over money and have severed relationships because of it. And some family members use their money to manipulate and control others. All of this history comes to the table when children and parents sit down together.

How many times have we planners heard something like “It’s dad’s money, and we don’t care if we ever get a dime”? Of course adult children are going to say these things — and most truly are sincere.

But sometimes what the child really means is “I don’t want mom’s money — unless, of course, it’s going to someone else.” That includes, in the child’s mind, Brother Tom (he’s such a loser) and Sister Sue (she just spends every dime she gets her hands on).

In reality, however, Brother Tom could be a hard-working guy who sells tires and who stops by to mow mom’s lawn each week during the summer. Sister Sue could be a single mother with two kids struggling to make ends meet after a bad divorce. That may be mom or dad’s point of view as they see their children through different eyes.

I think we should encourage our clients to make financial decisions through those eyes for as long as they are capable — with no “at-the-table” emotional influence.

Most children truly care about the happiness and well-being of their parents over any inheritance they may — or may not — receive. But, even in the loveliest of family relationships, I have sometimes gotten uncomfortable questions about future inheritances or “suggested” gifting strategies that mom or dad might want to “take advantage” of.

My gentle but straightforward response to the next generation is, “It’s not your money yet.” We can never know enough of a family’s personal history — their financial DNA — but knowing that we don’t know should cause us to question when to include the adult children of our clients in financial and estate planning discussions.

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Sandy is the founder and CEO of Confiance, based in Cleveland, Ohio. She is a certified financial planner and an accredited domestic partnership advisor specializing in planning for traditional as well as non-traditional relationships. Pamela also currently serves on the national board of the Financial Planning Association.

MONEY Estate Planning

Mom and Dad’s Money Secret (and How to Get In On It)

Stephen Swintek—Getty Images

Your Mom and Dad may be better off than you knew. But how well are they managing their finances?

Parents and their adult children often aren’t on the same page—and that’s especially true when it comes to money issues. But a new study uncovers a surprisingly big disconnect when it comes to understanding how prepared your Mom and Dad are for retirement. In many cases, the parents may be in better financial shape than their kids realize.

Three-quarters of parents and their adult children agree that it’s important to have frank conversations about wills, estate planning, eldercare and covering retirement expenses, according to Fidelity’s 2014 Intra-Family Finance Generational study out today. Yet 40% of parents surveyed say they haven’t had detailed conversations with their children about any of these topics, while 60% say they feel more comfortable talking to a financial professional than to their kids about their personal financial situation.

“Finances are always a difficult topic to broach with children. Parents want to retain their independence and they don’t want to be a burden to their children,” says John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity. “People in the sandwich generation know how tough it is from taking care of their own parents.”

The communication gap skews the expectations adult children have about taking care of their parents—and it adds to their stress about saving enough for their retirement. One out of three adults say they expect to support their Mom and Dad financially but 96% of parents say it won’t be needed.

The parents’ confidence may come in part from misunderstanding their retirement income needs. The survey found that 70% of parents don’t know exactly how much money they will have to live on in retirement, up from 65% when Fidelity did the survey two years ago.

The recent bull market may have also lulled parents into complacency. “It’s easy for people to become overconfident about their ability to manage their money,” says Ken Moraif, a senior advisor at Money Matters, a financial advisory firm in Dallas. “They don’t take into account that bull markets don’t go forever.”

Another startling gap from the survey: adult children underestimated the value of their parents’ estate by a whopping $300,000 on average. (The survey participants were an affluent group—parents were 55 or older, had children older than 30 and at least $100,000 in investable assets.)

Parents say a big reason they don’t talk to their kids about their personal finances is that they don’t want their kids to count too much on their future inheritance. Of course, that doesn’t mean parents will be passing on that wealth to their kids. Only half of American retirees are planning to give an inheritance to their children, according to a recent HSBC survey.

There’s also a big misunderstanding about who will care for Mom and Dad if they become ill. Nearly half of adult children expect to take care of a parent but only 6% of parents expect their kids to do that, the survey found.

“Adult children may plan to take care of their parents at the expense of other financial goals. If they know how those things will be funded, they can make better decisions about their own retirement,” says Sweeney.

Have these conversations before a health issue or financial problems crop up. “It’s much easier before there is a crisis,” says Moraif.

Of course, the hardest part is getting the conversation started. You could share a story about a friend who ran into problems because her father passed away before letting his children know how to find important documents. Another approach is to talk about your own plans for retirement and then inquire about how they are preparing.

“Tread lightly but sincerely with your parents. If they feel you’re coming from a place of love and caring, they’ll be more open. If they think you just want to know how much money they have for your inheritance, it’s not going to be a good conversation,” says Moraif.

Related: The Tough Talk Worth Having With Your Parents This Weekend

MONEY Ask the Expert

How to Ask Your Parents for a Bigger Share in Their Will

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: I have two siblings. My parents help out my sister a lot. My brother and I are doing ok financially. My parents plan to leave money equally to all three of us. I don’t think that’s fair. How can I say something without looking greedy? – John, Portland, Maine

A: If your parents are already giving your sister significant financial help, receiving equal amounts of money in their will may seem unfair. But that’s how most people do it, says lawyer Ann-Margaret Carrozza of MyElderLawAttorney.com.

The odds are small that the kids in any family will end up with identical financial outcomes, and those differences may not be easy to address in a will, which is a final document of your parents’ wishes for their family. “Most parents have a strong desire to treat their children equally,” says Carrozza.

Still, it makes sense ask your parents about their intentions. How do they view the financial help they’ve provided your sister? If they think of the money as a gift, then that’s the end of the conversation. If your parents consider it a loan that will be paid back, suggest that they formalize the arrangement with a promissory note and keep that document with their estate papers. Either way, find out what your parents’ goals are for their legacy, and get it in writing so there’s no confusion.

By having the conversation with your parents now, you can head off possible conflicts down the road. “When there’s an unequal distribution of assets in the will, the chances that the heirs not treated favorably will contest the will go up dramatically,” says Carrozza. That’s something to be avoided, given the high emotional and financial cost of a legal battle.

Consider yourself fortunate if you do get something from parents. Only half of American retirees are planning to give an inheritance to their children, according to a recent HSBC survey. (Those that did leave a bequest gave an average $177,000.) And a US Trust survey found that two out of three of affluent parents viewed spending on travel or personal experiences as more important than leaving a financial inheritance to their family.

“At the end of the day, what parents do with their money is up to them,” says Carrozza.

MONEY Financial Planning

What Would You Do With $100,000?

Stack of Money
iStock

Deciding how to spend a large inheritance isn't as easy as you might think. Heirs who have received big bequests, along with financial planners, share lessons learned.

What would you do if you suddenly got $100,000, no strings attached?

It’s a hypothetical question for most of us. But for Peter Brooks, it was reality a few years ago.

After the untimely death of an old friend from pancreatic cancer, a lawyer called Brooks and told him there was a check waiting for $107,000, taxes paid.

With $30 trillion set to change hands from one generation to the next over the next 30 years, many others will find themselves in a similar position, according to Accenture .

While some may receive a few trinkets and others millions of dollars, the median inheritance will be between $50,000 and $100,000, according to a survey by Interest.com.

Handling new and unexpected wealth may sound wonderful, but can be a financial challenge. We asked financial experts to assess the decisions of three different beneficiaries:

WELCOME BOOST

For Brooks, a 55-year-old marketing consultant from the San Francisco area, the money significantly improved his quality of life.

At first, he deposited the check into a managed portfolio that his bank recommended. This was just before the market crash in 2008. Frustrated when the portfolio didn’t budge, Brooks rolled the money into a certificate of deposit, which turned out to be fortuitous.

“When the market crashed, I thought, wow, I must have a guardian angel,” he says.

Brooks decided that real estate was the biggest risk he could stomach, and he found an old Victorian house to buy for himself in nearby Vallejo for $97,000.

Indeed, buying a house is one of the most common financial moves people make with new money, according to Susan Bradley, a financial planner and founder of the Sudden Money Institute, based in Palm Beach Gardens, Fla., who specializes in helping people manage newfound wealth.

“If your inheritance increases your sense of home and safety, that’s a really lovely thing to do with it,” Bradley says.

Her caveat is that this works only if you’re able to handle the upkeep on the house, which Brooks has been able to do just fine.

A SPLURGE (OR TWO)

By contrast, John Kerecz, a 52-year-old environmental engineer in Harrisburg, Pa., went on a spending spree after he inherited about $160,000, plus a broken-down house, when his father died two years ago.

Because his father had his paperwork in order, Kerecz was able to quickly access the cash. He hired a lawyer based on the recommendation of a family friend, got the death certificate, and had a payout from the insurance company within a couple of weeks.

Then he embarked on a series of trips to Europe, Nashville, and New Orleans with his mother, who was in declining health, and eventually spent about $100,000.

What remained went toward a new home for Kerecz and his mother, who now suffers from dementia. He is trying to sell his parents’ original home and intends to invest the proceeds from that sale.

“I feel bad that I kind of blew it, but I wanted my mother to enjoy life while she could,” he says.

It may seem irresponsible, but using an inheritance to make memories has intrinsic value, says Bradley.

“Sometimes you can meet that purpose without spending $100,000,” notes Bradley, who says she would have coached him to take a little more time to figure out how to build those memories with just $60,000.

IN OVER YOUR HEAD

Many inheritors get in even further over their heads, especially if the money comes when they are young.

Richard Rogers, a financial consultant with Stephens Private Client group in Little Rock, Ark., had a client who inherited a significant sum at 25 and insisted on buying an $80,000 car.

“I tried to tell him that if you compound this money for a few years, you can buy a lot nicer car. But you can’t tell somebody what to do,” Rogers says.

CarmenBelcher could have used that advice, too, when, at 22, she inherited $300,000 out of the blue from her estranged father.

The money came quickly because her name was on his bank accounts and she was listed as the beneficiary of his veteran’s benefits.

Belcher responsibly paid off her college loans, then moved from Missouri to New York for a graduate program in journalism. She used what was left to support herself.

Now, eight years later, the money is gone.

She blames that partly on not being savvy about spending in New York, and partly on the money not being invested optimally by a bank adviser in Missouri who first helped her.

“It’s unfortunate, when people haven’t thought through it and, before you know it, [the money is] gone,” says Bill Benjamin, chief executive officer of U.S. Bancorp Investment.

The ideal thing to do is to draw up a financial plan before you start dipping into an inheritance, he says.

While Belcher thinks she is better off than before — she is building a career as a fashion editor in New York — overall, the experience was negative.

“I couldn’t appreciate the amount of money,” she says. “If this would have happened at an older age, I would have had more knowledge.”

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