Financially unprepared: The unintended burden of inheritance
By Stephanie Ferreira, Financial Planning Specialist at Chartered Wealth Solutions and Director at WealthStrat.
As a financial planner, I’ve seen clients struggle with the responsibilities that come with inheritance. Often, beneficiaries are unprepared, lacking what I call "financial maturity" – the understanding and experience needed to manage inherited wealth effectively. Financial maturity means understanding the value of money, making informed decisions and feeling comfortable with financial responsibilities.
Emotional complexities of inheritance
Inheritance can come with emotional baggage. Some clients receive money from relatives with whom they had strained relationships, leading to feelings of guilt or reckless spending. Younger beneficiaries, in particular, may feel disconnected from the inheritance, viewing it as not truly theirs. This emotional complexity can significantly impact how they handle the money.
Importance of financial maturity
The biggest burden arises when the inheritor lacks financial maturity. For instance, I've encountered spouses overwhelmed by financial management after the death of their partner, simply because they were never involved in the financial planning. This fear and anxiety can persist even when significant funds are available, leading to a life lived in unnecessary scarcity.
Financial maturity is crucial when one partner has always controlled the finances. On their passing, the surviving spouse can feel overwhelmed and anxious about managing the money. This scenario is all too common and highlights the need for both partners to be involved in financial planning. Without this involvement, the remaining partner may live in fear and scarcity, despite having adequate funds.
Strategies for leaving a legacy without burden
1. Open communication
Discussing financial plans with your spouse and beneficiaries ensures they understand the purpose of the inheritance and are prepared to manage it. No matter how uncomfortable, these conversations can prevent future financial difficulties.
2. Involve loved ones in planning
Regularly involve your spouse in financial decisions and planning to build their confidence and knowledge. This shared responsibility ensures that both partners are prepared for any eventuality.
3. Educate and prepare children
Share your will and estate plan with your children. Allow them to ask questions and understand your intentions to prevent future mismanagement of funds. Involving them early helps build their financial maturity and ensures they are ready to handle the inheritance responsibly.
4. Address emotional complexities
Acknowledge the emotional aspects of inheritance and provide support to help beneficiaries deal with these feelings. This can prevent emotional decisions that might negatively impact their financial future.
Inheriting should be seen as a gift and a legacy to be honoured, not a burden. Proper preparation and communication can empower beneficiaries to manage their inheritance confidently, turning potential burdens into lasting legacies. By fostering financial maturity and involving loved ones in financial planning, you can ensure that your legacy is managed wisely and fulfils your intentions.
Ultimately, the best way to honour the legacy of a loved one is by being prepared and empowered to manage the inheritance with confidence. This approach transforms potential burdens into lasting legacies, ensuring the inheritance serves its intended purpose and supports the beneficiaries' financial well-being. For more information, visit www.charteredwealth.co.za.