10/1/2018
During the process of settling a loved one's estate, cash is often among the first assets distributed to beneficiaries. On the surface, a cash inheritance has immediate benefits: validation, comfort, potential. However, professionals advise proceeding with an ounce of caution to help separate grief from spending.
In situations where money and grief collide, a "pause and plan" strategy can benefit beneficiaries, not only protecting your inheritance during turbulent emotional times but also preventing impulse spending that could add even more grief to your life. It's important to understand how pausing and planning can help you better manage a cash inheritance.
Understanding the Relationship Between Grief and Money
"Money is so often about control, and grief can often be about our lack of control," says Jennifer Soos, MA, LMFT at the Institute for Couple and Family Enhancement in San Antonio. "It's natural for us to want to use one to resolve the other, but the results can often be disastrous."
In the early months following the death of a loved one, people can experience impulses about changing their lives, locale, and perhaps even career. "These impulses are usually representative of the person's desire for control over something," says Soos.
"Impulses can also be about one's desire for relief, thinking that if it's possible to change a circumstance, then the pain associated with loss can be avoided." The desire to avoid pain can lead to impulse spending, funded by cash infusions from inheritances. From retail therapy to generous charitable donations, impulse spending can deplete a cash inheritance — and fast.
Death brings about a myriad of changes in a family — emotionally and dynamically. These changes are one of the key reasons why you should err on the side of giving yourself more time both to grieve and to decide the next steps you want to take with a cash inheritance.
Recommendations — and the Reasoning Behind Pause and-Plan
"A readily available asset such as cash can lead to mistakes that are challenging to overcome," says Jay Knighton, a board-certified estate planning attorney with Knighton & Stone, PLLC, in The Woodlands, Texas. To help avoid mistakes, Knighton recommends thinking of cash as king for at least a year following an inheritance. "Cash acts as a security blanket that survivors can see, touch, feel, and understand to carry them through challenges in the foreseeable future."
Knighton recommends that beneficiaries receiving cash inheritances create a reserve fund of one year of living expenses and secure those funds in the bank. "This security provides people with the financial stability to make better financial decisions over the next year."
Soos advises her clients to do the same: Just let the money sit. "I encourage people to remember that, if you wait, the money will still be there. If the idea you have for spending the money now still seems like a good idea, you can still do it."
Knighton often sees shifting financial dynamics in families following the death of a loved one — another reason he recommends a pause-and-plan strategy. "Many surviving spouses have not made important decisions without the wisdom and guidance of their spouse for many years," says Knighton. Placing a cash inheritance in the bank gives the beneficiary security, knowing the money is safe, and also the emotional space necessary to both process their grief and make the most informed financial decisions possible.
Avoiding Unnecessary Risks
Both Knighton and Soos see a list of preventable risks that can come with impulsive decisions made with cash inheritances.
In Knighton's practice, hasty decision-making can lead to less-than-desirable financial relationships. "All too often the decedent was the family member who handled the finances. As a result, the survivors were unfamiliar with how the family assets worked to provide for the future and satisfy expenses," says Knighton. "Suddenly, new, unknown advisors appear who can help the beneficiaries manage the assets, and cash is one of the first to transfer to the new advisors, who may not have the best interests of the beneficiary at heart."
Soos shares that the most significant risk she sees clients facing is regret. "Patients says things like, 'I wish I had waited' and 'If I could go back and do this last year over again, I would do it so differently,'" says Soos. “Emotions are intense, complicated, and unpredictable immediately following a significant loss. Most decisions made during that intense period are influenced or driven primarily by emotion, which makes them inherently risky."
Taking Sound Next Steps
There's no argument that receiving a cash inheritance could significantly change your life. Visualizing these changes can offer a form of relief when faced with grief and help you see past the loss you've suffered.
Remember that a cash inheritance has no expiration date. A pause-and-plan strategy can give you more time to interview trusted advisors, review your estate plan in light of your new financial situation, and plan for the future — all with a higher level of confidence and a lower level of stress.
Placing your cash inheritance into a savings account or CD can help you protect your inheritance while you take the emotional time you need to decide what's next. In turn, you can prevent the avoidable risks and regrets that come with impulse decisions and choose the most beneficial steps to take for your financial future.
