As inflation has risen over the last couple of years, consumers have felt how the value of their wealth and income has diminished. For those waiting on an inheritance, this reality has been extremely painful, as they’ve watched the value of their inheritances decline and many feel powerless to do anything about it.
When someone passes away, the standard method of distribution requires assets to go through probate. Probate is a legal process wherein a will is “proved” in a court of law and accepted as a valid public document. If there is no will the court will decide distribution based on laws in the particular jurisdiction. This process ensures the legal and rightful distribution of assets to the heirs and beneficiaries. However, probate can be a lengthy affair, stretching from a few months to several years. During this period, the assets within the estate are essentially frozen, awaiting legal clearance for distribution.
In an inflationary environment, the real value of these assets could be eroding. For instance, if an estate holds a significant amount of cash or cash-equivalent assets, their purchasing power declines with rising prices. Similarly, if the estate comprises real assets like property or other fixed assets, their relative value may not keep pace with inflation, especially if they are not income-generating or appreciating at a rate higher than inflation.
A prolonged probate period exacerbates this issue. While the assets are tied up in probate, the beneficiaries are unable to access or deploy these resources to either preserve or enhance their value. They can’t invest the assets in opportunities that may potentially outpace inflation or generate income. This delay can lead to a substantial reduction of the estate’s value in terms of buying power, leaving the heirs with less than expected.
In certain scenarios, it may make pragmatic sense to expedite access to these funds, even if it means sacrificing some of the estate’s value. In these circumstances accepting an inheritance advance can allow you immediate access to cash. The advantage here is immediate liquidity and the potential to reinvest the funds in higher-yielding or inflation-hedging assets.
The intricacies of estate planning and management underscore the importance of a well-considered strategy, tailored to individual circumstances and the broader economic environment. Inflation and probate delays are but two of the many factors that can impact an estate’s value. Hence, engaging with professional estate planners, who can provide a nuanced understanding and strategic recommendations, can be invaluable in navigating these complex waters.