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How to avoid inheritance blues

Submitted by admin on Tue, 08/28/2007 - 22:13.

Children of Americans 59 and older will be the heirs of the wealthiest group of seniors in the nation's history, but their good fortune may present all kinds of problems.

Money accumulated through the stock market, real estate, pensions, and other investments to the tune of $41 trillion will be up for grabs for the next 50 years, according to a study at Boston College's Social Welfare Research Institute. But are the heirs ready?

People don't want to talk about death and inheritance. Avoiding that conversation, however, may result in millions of inheritance dollars squandered by heirs not prepared to properly manage it.

The following tips may help you avoid blunders heirs typically make:

  • Watch out for con artists. To keep the financial vultures away, talk ahead of time to the person leaving you money about whether it makes sense to set up a living trust to help you avoid the public probate process. Once you inherit, put your phone number on the national do-not-call registry at donotcall.gov, or call 888-382-1222 from the phone number you want to register. Ignore unsolicited mail and e-mail and be wary of bogus bills. Order copies of your parents' credit reports, which list outstanding debts and accounts.

  • Resist the urge to invest immediatley, spend it on a vacation, or give it away to family, friends, or charity. There is usually no penalty for hanging on to the money; any estate taxes due on it already were paid before you received it.

  • Make a post-windfall to-do list. List your goals in order of importance, and estimate how much it will cost to achieve each one. Examples may be paying off high-interest debt, creating an education or emergency fund, or investing for retirement.

  • Get the right help. You'll need a competent financial planner to help you manage your inheritance. Seek advice from your credit union, or through the National Association of Personal Financial Planners, which represents fee-only financial planners.

  • Consider your own estate. Protect some of the newfound wealth from taxes by putting it in trusts or giving it to relatives. You can give as much as $11,000 a year to each of your family members without tax implications.