Emotions will probably run high during estate settlement. Stopping to think — and setting goals — can help you make the most of any inheritance. Here's the main problem with doing a “regular” series of pieces about estate settlement: Nothing is regular.
You have fits of activity — documents sent by registered mail, conference calls — and long slogs of waiting.
We're in that state now. We've read the will. We've started to receive documents describing the assets in Dad's will and trust. We've also started receiving regularly updated time lines of milestones and deadlines.
Two years … and counting
The timeline goes into summer 2014, over two years after my father's death. Right now we're in the creditor period — 90 days when individuals and businesses can come forth to settle any debt my father had with them. (State requirements vary; rules about how to notify creditors in Florida are spelled out on a government website.)
We have a good idea of my dad's situation at the end of his life, and it's unlikely that an unexpected creditor will appear. Still, his health problems in his final years are a possible source; medical treatments at the end of his life were substantial.
So, for now, everything in the asset documents is hypothetical.
Be wary of making decisions with emotion
Still, I have a pretty good idea of the types of assets we're talking about, and, barring any surprises, what type of inheritance my siblings and I will receive.
And here is where an alarm sounds — an alarm grown from years of reading personal-finance books such as The Bogleheads Guide to Investing and listening to Dave Ramsey preach in his podcasts.
As a single mom with a moderate-paying job, I can say the last few years of day-care costs and health-insurance premiums have wrung me out. I live by a monthly written budget, and I can afford our life — and save for key goals — but I have almost no wiggle room. I use online calculators to figure out how much I will need to save for college for my son, and then I look at the balance in his fund, and my stomach turns over. I've saved extra for retirement since age 22, but my emergency fund takes a beating every time the car or house needs a repair.
This inheritance, while not changing my life completely, can certainly enhance it. The question is, how?
Take advantage of the wait
So here is where all those articles and books you're probably reading, too, become very, very relevant. When something like this happens — when you're emotionally compromised and potentially facing a windfall — it's critical to do two things:
- Sit on the money for awhile. Let your feelings settle and your thoughts clear.
- Have your goals in place.
The emotions that accompany a windfall are temporary and usually go away within six months. The most important secret to preserving a windfall is to not touch it until the emotions subside and you come up with a sound plan for putting the money to work.
The authors offer exceptions, like paying off certain kinds of debt, but their advice is echoed by other financial experts — if you start spending and investing based on your emotions, you may end up with nothing to show for the gift.
Identifying values and goals pays off
In early 2011, I finally wrote down my family values and created goals tied into those values:
- I value constant learning, so I was going to find a way to fund part of my son's college education.
- I value relationships with friends and family, so I was going to invite people over for dinner a couple of times a month (planning for the extra grocery budget accordingly).
- I value self-reliance, so I was going to continue to put 15 percent of my gross income in retirement — even when it hurt.
Having those values and goals, among others, written down now gives me an emotional shortcut for what to do in the years to come when the estate is settled (finally). I can match my money management to my values.
I also know where my dad and I agreed, such as valuing my son's education and intellect, so I know, for example, I will prioritize saving for his college to honor my dad's values, too.
For most of my life, Dad and I didn't have a lot in common; I was raised by my mother after they divorced, and he didn't always agree with my choices, from the language I studied in high school (French!) to my college major or political opinions. Later in his life, he seemed pleased when I started a freelance writing career covering financial issues. The first time I mentioned financial guru Dave Ramsey to him, he chuckled. I'm sure he thought I was, eventually, becoming more like him.
Maybe I am. I do hope, in the end, I can make similar, smart money choices and good decisions about my own estate planning.