The mixed emotions of managing an inheritance

As we noted in our first blog outlining the legal, financial and tax implications of managing an inheritance, a significant wealth transition can be a life-changing event—or at least one that gives rise to new decisions and opportunities.

It can also be the source of mixed emotions – everything from gratitude for new opportunities to a sense of overwhelming responsibility that can be uncomfortable. Your family relationships and the way you’re perceived by others could also be affected.

“I was so sad to lose my father, but at the same time, I wanted to make sure he’d be proud of the way I was handling the inheritance that he left for my family,” one Newport client explained. “It was a lot to manage at once.”

While the ways people choose to use their inheritance will vary, there is often a desire to do the right thing and honour those who created the wealth in the first place—even if the inheritors aren’t always sure how.

For those who are less financially secure, an inheritance can be a one-time gift they know they should preserve and grow. This can create some anxiety, especially if an inheritor is unfamiliar with their investing options and fearful of making unwise decisions.

“No matter your circumstances when you acquire it, wealth should never define you,” says Newport Managing Director and Portfolio Manager Stephen Hafner. “You’re in full control of the inheritance and can decide how it impacts your future.”

Managing an inheritance on your terms starts by weighing the technical considerations as we outlined in part one, then taking steps to work through the emotions that will shape your approach to sharing, enhancing or building a meaningful family legacy with the money.

Recognize feelings may be complex, but they shouldn’t drive decision making

Some people privately express apprehension about how the inheritance could potentially change their lives, their family and their values in undesirable ways.

“I had two clients who unexpectedly inherited a large sum but were already well grounded and responsible with their wealth,” Hafner recalls. “It was a life-changing amount and they were primarily concerned with being responsible stewards of that capital. They didn’t want to tell their kids, their neighbours or their friends at church. At that point, they were solidly upper middle class and didn’t want the inheritance to redefine their lives.”

In some cases, the circumstances surrounding a loved one’s death can raise overwhelming grief or guilt that may lead to a rejection of the inherited money. “It felt like blood money to me,” said one inheritor, who added that she gave some of the money away in an effort to feel better.

Taking care of yourself and seeking support through bereavement and grief counseling may help you come to terms with the inheritance and work towards relieving that emotional burden.

Take stock, stay true to your values and seek input from people you trust

An inheritance is a perfect opportunity to think about what you want to achieve in life and the kind of future you want for your family. Many inheritors are sure that they don’t want it to unduly affect their lifestyle or impact how their children are raised.

That was the case for Hafner’s clients.

“In the end, they stayed true to their values and have yet to draw on the inheritance. It didn’t change their lives other than spending on a couple of luxuries, and the money has continued to grow.”

Some families use structured meetings to reflect, better understand each other and set a roadmap for the future. This can include documenting shared values across generations and outlining how those values could be reinforced and passed down to enhance family cohesion, purpose, and legacy.

It is also a time when having a team of advisors who you know and trust can be of value. In addition to managing practical tax or legal considerations, you can lean on them for advice, strategic guidance, and support in working through the emotions and the opportunities your inheritance may bring.

As one Newport client recalls, “It wasn’t until I sat down with my accountant and Newport that I was able to think about what I really wanted to do with the inheritance. They also helped me fully understand the scope of my inheritance and begin planning. I was able to gift some of the money to my children and be philanthropic—which was something I always said I would do if I became wealthy—and still live comfortably.”

Use wealth to build a lasting family legacy

Sometimes an inheritance comes to people who are already financially well-off. In those cases, the objective is often to spend the money in the best, most honouring way possible rather than simply blending it with their existing assets and adding extra zeroes to their net worth.

That could mean funding the education of a future generation, purchasing a family property where family memories can be built and shared, or using the money to make a major charitable gift.

One Newport client, a successful entrepreneur, inherited a large (and unexpected) fortune from his parents. The estate would have made him ultra-wealthy, but he decided not to keep it.

He plans to give the entire fortune away to honour his parents’ hard work and to teach his kids about the importance of philanthropy. He’s currently developing a strategy to maximize the impact of this extraordinary gift.

“I asked myself, ‘How much money is enough?’” the client recalls. “My parents did the work to earn the money and I’m not very comfortable taking it, but I do want to teach my kids how to give back and be generous.”

Many Newport clients work with Canada Gives—a charity that helps individuals and families establish philanthropic foundations—to put greater structure behind their giving.

A Canada Gives Foundation Account (also known as a donor advised fund) not only gives philanthropists a simplified, administration-free tool to build a lasting legacy during their living years; it also offers a platform to entrench their family values across generations by involving loved ones in the giving process.

“An inheritance can be an opportunity to create a lasting legacy that reflects the values of the person who you’re honouring,” says Newport Portfolio Manager Jordan Schwann. “That could mean giving a gift to a cause specific to the person who left the money behind, or doing something close to their heart, such as creating a scholarship fund in their name.”

Privacy is often the best policy

One of the more emotional aspects of managing an inheritance are the requests for financial support from relatives, friends, or business associates who may come seeking investment in a new venture. Fraud is another looming issue.

Even charities can become relentless in their requests for support once it becomes known that you’re a benefactor with significant or new wealth.

“If it’s public knowledge that you’ve inherited, people could try to take advantage of you,” says Ed Esposto, an estate lawyer and partner with Toronto-based law firm Aird & Berlis LLP. “Family members tend to come out of the woodwork looking for investment support and other types of assistance.”

One Newport client faced that scenario after inheriting his mother’s seven-figure investment portfolio.

“About two months after my mother passed, I was trying to complete her terminal tax return, work with my advisors to manage through the probate process and finalize her estate—not to mention dealing with her loss—when a cousin reached out asking me for $100,000 to pay down debt. I was stunned,” he recalls.

“I wanted to help him, but I was numb when he asked me for money so close to her death. Then I realized this must happen all the time. In the end, I turned him down, saying that the estate was still tied up in legalities and that I couldn’t help him at that point. He didn’t come back looking for money again.”

Keeping an inheritance private and confidential, especially in the early days after the wealth transition, can ease that pressure and provide the time needed to work through emotions before fielding (often unwelcome) requests for financial help.

As we noted in part one, working with a wealth manager outside of your area can help maintain privacy, especially if you live in a small, close-knit town. And if the requests for money become overwhelming, your financial advisor can be a helpful buffer.

We know one client who handles requests for money by deferring them to her wealth manager: “Ask my financial advisor,” she’ll say or, alternatively, “I’d like to help you, but my financial advisor won’t let me.”

9 questions for self reflection

Because this process can be so overwhelming, we’ve developed questions to use as a starting point as you work through the vast array of emotions that come with inheriting wealth. Taking time to reflect on these questions will help to ensure that you stay true to your values and manage the money on your terms:

1. How do you feel about inheriting this money?
2. Have you thought about the opportunities this inheritance will allow?
3. How do you think about this inheritance in relation to other assets/wealth you have?
4. In what way(s) do you anticipate the quality of your life may be affected?
5. Do you have any fears about how this inheritance could change you/your family in ways that you may not like?
6. If given a choice, would you prefer that people know or not know of your increased wealth?
7. Are there any expectations (stated or unstated) that would impact how you handle this inheritance?
8. What was the source of the wealth and what values were practiced to earn that wealth?
9. Are there ways you would like to honour/recognize those values in the handling of your inheritance?

If you require assistance with any of the points outlined in this blog or in part one, please contact a member of our team.