Unexpected windfalls are welcome, but on the heels of a loved one's death, they can also be a huge burden. Conventional wisdom states that you shouldn't make any big, life-altering decisions within six to 12 months of a serious loss, but that invites a host of questions: What do I do with the money in the meantime? What about decisions I have to make quickly? How can I assure they're sound? How do I know if I'm ready to tackle a big decision?
1. What can I do with the money in the meantime?
A high-yield savings account may be the best bet for where to put your money while you are weighing all of the options and factors involved in your inheritance. Your money will be stashed away somewhere safe, earn a little interest, and yet still be easily accessible when and if it's needed. Check out our Savings Center to find the best place to stash your short-term cash.
2. How can I make sure decisions I have to make now (quickly) are sound?
This is a good time to consider hiring experts to help you with your financial decision making. A financial planner can take a broad view of your financial picture and offer advice for how your inheritance may best be used to contribute to your overall financial health. For example, if you are carrying a lot of high-interest debt, your financial professional may suggest you pay that off immediately. Or if your retirement funds are sparse, he may suggest an aggressive plan to get you on track with saving for retirement.
3. How do I know if I'm ready to tackle a big decision?
It can be difficult (if not downright impossible) to make an objective determination of your own fitness to make decisions. Now's a good time to rely on trusted friends and family members, to solicit advice, and to put some of your own safeguards in place before outlaying any major funds.
The heart has its own timetable
Consider the story of "Anne," who arrived at my psychotherapy office. A widow for just over a year, she had inherited a large sum of money but was now the sole surviving parent of three young children who would need food, shelter, and all of the other things kids need for at least 14 more years. And that's without factoring in any help they might need after their 18th birthdays.
Anne was still understandably in shock from her husband's death. She hadn't yet packed away his things, removed his shoes from his side of the bed, or taken off her wedding ring. And yet, this is the time she also chose to jump into the real estate market with a friend. The friend had kept Anne company while she was mourning, something for which Anne was very grateful.
Anne and the friend agreed that Anne would put up the money for the down payments on two rental properties. She and her friend would split the monthly payments until the properties were rented, share in the upkeep, and then turn them over for a profit, which her friend would share in equally. The friend, once her credit was up to snuff and she had a windfall of money from previous sales, would contribute equally to future purchases. In the meantime, Anne would have "fun" getting involved in this new entrepreneurial venture.
Yes, you read the details correctly. Anne's friend put up no money and yet would get half the profit. What's more: The friend and her husband were promptly transferred out of the country after the deals were signed and so couldn't share in the upkeep, help show the properties to interested parties, or do anything at all to help. The "fun" Anne anticipated quickly ended.
You might scoff at this situation and think that you would never make such egregious errors in judgment. But Anne was quite intelligent -- a dedicated mother who'd been a successful career woman. She was also overwhelmed, vulnerable, and grieving the loss of her life's partner. A year to grieve simply hadn't been enough.
What you can learn
- Allowing six to 12 months before making major decisions is a guideline, not a universal prescription. Some folks are harder hit by a loss or have other circumstances that complicate the mourning process. Those folks may need to proceed even more cautiously before making life-altering decisions.
- Get support during your grieving process. Difficulty coping with loss is a normal human reaction, not a sign of weakness. Grief support groups, trained professionals, and even online community resources can be effective in helping you work through this tough time. Consider contacting area churches, hospices, or hospitals to find grief programs in your area.
- Consult a financial expert; this is one of those times when going it on your own may not be in your best interest. Fee-only planners can help you develop sound strategies for handling your newfound assets, and you won't have to worry about their commissions taking a bite out of your inheritance. Visit the National Association of Personal Financial Advisors or GarrettPlanningNetwork.com to see if a fee-only advisor is available in your area.
- Be willing to accept help from trusted friends and family members. For example, when I asked Anne what her family had said about her proposed business deal, she said, "I didn't tell them because I knew they would try to talk me out of it." Her intuition clearly was telling here what she was doing wouldn't stand up to scrutiny (good self-awareness), but she chose to ignore it (lousy decision making).
- Make rules about how long to consider a big decision before taking any action. You might also want to put a cap on how much you can spend in the aftermath of a loss. Splurging on a new sports car may make you feel better for a little while, but it can get very expensive trying to outrun grief.
- Avoid major moves for at least a year. Sometimes in the immediate aftermath of a loss, folks think they simply can't live with the constant reminders of their loved one and make hasty decisions to relocate. The truth is, while the reminders are tough, grief will follow you wherever you go, even out of state and into a "new" life. Better to take some time to work through the intensity of the loss before making such a big lifestyle change.
- Honor the conventional wisdom that suggests you shouldn't mix business with friendship. In the best of times, money issues can complicate or even ruin a perfectly good relationship; during the time after a loss, it can get that much uglier.
This article is adapted from the Motley Fool Green Light "Money Answers" archive, which features more than 100 articles on personal finance topics ranging from taxes to credit to beginning investing, organized by subject and life stage. For access to this content plus the current newsletter, back issues, members-only discussion boards, and advisor blogs, take a free 30-day trial today!
Fool contributor Elizabeth Brokamp is a licensed professional counselor with a special interest in Robert Brokamp, editor of The Motley Fool's Rule Your Retirement newsletter.