Questions To Ask Your Wealth Advisor About Your Inheritance

Whenever you receive a lump sum of money, whether through an inheritance or another life event, your Wealth Advisor’s first recommendation will most likely be for you to invest it, their priority is always the growth of your portfolio and securing your financial future, so further investment will always be the best choice from their perspective.

However, there may be reasons that you’d like to make some other decisions. Particularly with inheritances, there may be emotional or sentimental reasons that you aren’t in a hurry to liquidate inherited property. Either way, it’s worthwhile to explore your other options. If you’re unsure how to initiate the conversation with your advisor, below are a few questions that can help get you started.

  • 1. Am I on track for my goals?

If you’ve been prudently saving and investing to secure your retirement, you may not need to support any of your inheritance to achieve your goals. While investing additional money can help you achieve your goals sooner or to live a better lifestyle at retirement, you may already be on track for what you want. Before you start making decisions, it’s good to know where you stand.

  • 2. How well do the inherited investments integrate with my portfolio if the inheritance includes investments?

Your advisor likely has a model portfolio that they adhere to. If new assets are received, their first instinct will be to liquidate assets that don’t fit the model and bring things back into alignment. While your advisor has good reasons for doing this, it may not be necessary. The inherited assets may expose you to new asset classes or alternative investment strategies that add additional diversification to your existing investments.

It is also possible that the inherited property is not well aligned with your objectives. For example, if you are a conservative investor who just inherited a substantial amount of cryptocurrency or another speculative investment, liquidation may be the best strategy. Your advisor can give you specific guidance.

  • 3. If there are assets that you have an emotional attachment to, how can you manage the risk while continuing to hold the investment?

Occasionally beneficiaries inherit property that holds substantial sentimental value. For example, if a parent worked at a publicly-traded company and had company stock throughout their life, you may not want to sell it right away. Unfortunately, company stock can be volatile, and you may feel uncomfortable with the risk of loss.

In those circumstances, your advisor may be able to help you implement a strategy to reduce the risk, either by using uncorrelated assets to balance your portfolio or using options contracts as a hedge. Either approach will allow you to maintain your position while managing the volatility.

  • 4. What is the optimal balance between consumption and investment?

You may have already decided there are several things you want to do with the money but want to be prudent. Discussing the right amount to invest with your advisor and how that will impact your goals will allow you to spend the rest comfortably. Map out your short-term goals in advance and share them with your advisor. They can help you figure out which you can prioritize and which you should consider setting aside.

  • 5. If you are on track and don’t need any additional spending, what are some ways to gift to the next generation?

You may feel that you are in an excellent financial position and would instead provide a gift for your children or grandchildren. Depending on the amount you want to gift, you may be able to use tax-advantaged vehicles such as a 529 plan, which can help fund college. You can also consider giving using a trust or a UTMA/UGMA account, which allows you to be the custodian of the assets for the benefit of a minor. Your advisor can provide additional information.

When inheriting money, it’s a good idea to have a clear picture of what you want. Using the above questions as a guide, you can engage your wealth advisor to make the best possible decisions to enjoy the inheritance, use it to help achieve your goals or gift it to the next generation.