How Best To Handle An Inheritance During An Economic Downturn

Over the last few months, economic uncertainty has increased dramatically. There are concerns about inflation, a potential recession, and declining house and stock markets. For beneficiaries waiting for an estate to settle this time has been even more frustrating as they watch values drop for assets they don’t yet control. While there are limits to what a beneficiary can do while the probate process is pending, there are a few things to keep in mind. 

The first signs of an economic slowdown began in early 2022 when the Federal Reserve, who sets interest rates for interbank lending, signaled a rate increase. Since banks sit at the center of our monetary system, a rise in rates for them means rates are likely to increase across the board. Rising interest rates mean consumers will be more cautious about spending or buying big ticket items like homes and cars. It also means businesses are likely to be more cautious about taking on debt to expand or increase their work force. Not only that, but savers will also be incentivized to keep money in savings accounts or fixed investments as rates of return on low-risk investment products increase. With businesses and consumers limiting their borrowing and keeping money in savings, it’s easy to see how the economy would slow down.

Since the early rate hikes did not slow down inflation, more have followed. The high cost of necessary consumer staples, like energy and food, have made the problem worse as consumers have even less discretionary money to spend. This means businesses make less, which means fewer and lower paying job openings and so on.

The good news is that you can’t have inflation and a declining economy at the same time for too long. Eventually the decline in the economy will lead to a reduced demand for products. Reduced demand will eventually lead to lower prices and inflation will ease. As it does, new investors will begin taking advantage of opportunities and the economy will begin another period of expansion. So, for a beneficiary waiting on an inheritance, it’s important to keep in mind that declines in value for most assets are only temporary and patience typically pays off.

You can still be strategic while you wait. To do that, it’s important to understand exactly how the estate is allocated. Meeting with an investment advisor can help you understand how volatile the estate assets are and what the potential downsides might be. If the estate has significant residential or commercial real estate holdings, meeting with a real estate agent can give you a sense of how the properties might perform with the current market dynamics.

Once you have a good understanding of the potential inheritance, consider the incoming inheritance as part of your overall portfolio. For example, if you already have a substantial allocation of your portfolio in U.S. stocks, and you are inheriting a large amount of US stock, you may want to reduce the exposure in the positions you currently hold. Similarly, if you will be inheriting real estate, there may be ways to reduce your real estate exposure. Your financial advisor can help you understand how to balance your current investments with the potential inheritance.

If you have a short-term financial need, you can also consider an inheritance advance. An inheritance advance can help you not only meet the need right away, but provide certainty around the amount you will receive. While inheritance advances have a cost associated with them, being able to meet a short-term financial need and gaining the peace of mind of knowing exactly what you will receive can be worth the costs you incur.