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The word inheritance can mean many things to different people. Find out how you can ensure that your inheritance is well-used.
When you hear the word “inheritance,” what images come to mind? For some it may be the child of a billionaire flaunting expensive sports cars and luxurious homes. Others may think of sitting in an attorney’s office with family members reading a will.
Whatever you think of, the reality is that receiving an inheritance brings many challenges that you will need to prepare for, especially as a physician. Here are some of the biggest challenges, along with suggestions for meeting them.
Take time to process your emotions. An inheritance often is accompanied by feelings of loss. Whether it is a family member or close friend who has died, you must process the emotions. Your decision-making skills are not at their peak during this time. By waiting 6 to 9 months before making any big decisions or commitments, you are giving yourself time to heal and reflect on what is important to you.
Be patient. Settling an estate usually is a time-consuming and frustrating process. Often it can take a year or more. If you are the executor of the estate, fulfilling your duties may take you away from your practice. Having patience will help see you through the process.
Review your plans. Before the inheritance, you probably had plans. Consider them as you decide what you are going to do with your inheritance. Think about retirement and your childrens’ college educations before using your newfound funds to purchase a second home or make a major gift to charity.
Ask your financial adviser to run cash flow projections to see where your money will be the most productive. For example, if you own a practice, can you use your inheritance to fund your current lifestyle? If so, can some income from your practice be deferred into tax-sheltered vehicles to lower your taxable income? Planning now will help you live the way you want now and in the future.
Mitigate the risks. As a physician, you are aware of the litigiousness of today’s society. Unfortunately, your inheritance may make you an even bigger target for lawsuits if it is substantial. Review your insurance policies to ensure that your coverage limits are sufficient to protect you. Also, you may need to revise your estate plan. For example, you may need to increase your life insurance to cover estate taxes due upon your death.
Consider the source. Do you want to honor the person who left you the inheritance? You may want to establish a donor-advised fund or plan a symbolic family trip. I work with a woman whose adult daughter died suddenly and left her estate to her mother. She used the proceeds to take her six surviving children, their spouses, and 10 grandchildren on a trip to Ireland as a celebration of her deceased daughter’s life.
Get help. What will the net assets of the estate be? How will you pay the estate taxes? Those types of questions are best answered by your attorney or financial adviser or accountant. Your team members should communicate with one another and work together to benefit you. Doing so will help alleviate your stress.
Inheritances can provoke a wide range of emotions. You can’t predict how you will feel, what you will receive, and when you will receive it, but these tips should help you prepare yourself to handle the challenges an inheritance may bring.
The author is a partner and founding member of Connecticut Wealth Management LLC in Farmington, Connecticut. Do you have a subject related to professional finances you would like to have our experts address? Send it to firstname.lastname@example.org. Also engage at www.twitter.com/MedEconomics and www.facebook.com/MedicalEconomics.