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  • How to Handle Inheritance Money?

How to Handle Inheritance Money?

19 March 2015

By David Crossley*, Practice Manager, BDO Wealth Advisers (Pty) Ltd

Johannesburg, South Africa - An inheritance is something that many of us dream about but few af us ever expect to receive.

Generally, this sort of “Windfall” comes as a result of the death of a relative, distant or otherwise who has seen fit for whatever reason to include our names as beneficiaries in their Will.

Whilst an inheritance generally takes the form of hard cash, it can also be in the form of property, be it a house, a cherished car or even jewellery and personal effects.

The world is full of people who received an inheritance and then went on a spending spree, squandering this money on riotous living and inconsequential purchases.

The famous footballer, George Best was once quoted as saying “I spent my money on wine, women and song and the rest I squandered.”

We may be lucky to receive a share of our parents' estate on the death of the last parent and we may be privy to the contents of the Will, but the same disciplines apply should we finally see this lump sum in our bank account.

The definition of a Windfall, which is what many inheritances can be defined as, contains the words “Receive” and “Unexpectedly” and here are some suggestions as to what we should do if we are in this fortunate position.

Rule one – Pause and think for a while before any action is taken! Put the money in a simple bank account until this thought process has been completed.

Whether this inheritance is in cash or in some form of property, it is something that we have not budgeted our expenditure against and considerable thought should be given to what it should be used for.

Do I have any debt, short or long term? If the answer is “Yes” then it would be feasible to use all or part of this inheritance to liquidate this debt, thereby improving your cash-flow.

Do I need to supplement my current income? You may be retired and need the extra income derived from the inheritance, in which case the services of an experienced Financial Planner should be sought to maximise this potential income.

The education of children – This windfall may go some considerable way to supplementing the education of your children (Or your grandchildren!) in which case it should be earmarked for this purpose and excluded from the family budget. The cost of educating children is escalating alarmingly and such an application can make the difference between an excellent and a mediocre education.

Do I need to supplement my future retirement capital? The importance of providing an adequate amount of capital for retirement cannot be overstated and an inheritance, however small will help to grow that retirement capital with a lump sum “Boost.”

Above all else, whatever decision you make should be assisted by a professional financial planner, who is able to make objective suggestions, devoid of any emotions and help you arrive at the optimum solution for what you have inherited.

A final snippet of advice – if you have been lucky enough to inherit an exotic sports car, then enjoy it for a while – before you decide to sell it and invest the proceeds sensibly!

*David is a non-practicing Certified Financial Planner with 41 years' experience in the financial services industry. He is passionate about people providing correctly for their financial wellbeing and making the right decisions about money.