Receiving a large inheritance is supposed to be a blessing, but in some ways it can become more of a curse. Having a large amount of money is a big responsibility, and those who are not ready for that responsibility can find themselves depressed, angry, and just out-of-control. Add in a spouse – especially with a different family background from yourself, and things can get really difficult.
Handling the money itself is actually quite simple. I’ve often referred to the Parable of the Pipeline, a story which describes setting up pipelines to allow water to be drawn when desired without the labor of carrying buckets (working). In other words, investing the money in things that will allow you to draw an income from it without spending the principle. The best thing to do with any kind of wealth is to set it up as a “pipeline” and then using a portion of the revenue generated from the pipeline, allowing the rest to be reinvested and grow. In this way, even if you waste the money at first, you will always have another chance to do better.
For example, if you had a million dollars, it would be gone in ten years if you were to simply draw $100,000 from it each year and spend it. If you set it up in a mutual fund, however, and just spent the distributions generated from it, you would probably have an income stream that averaged about $100,000 per year that you could spend but after ten years, you would still have the original million dollars. Note this would be an average – some years you might get nothing and others you might get $200,000.
More of an issue though would be the conflicts in your marriage that could arise. For example, if the husband makes $50,000 per year and the wife receives a million dollar inheritance, he might feel inadequate as a provider if the couple begins buying a lot of lavish items with the money that they were unable to buy with his salary. Another issue might be that the spouse who received the money would feel that it was “his money” or “her money” and not be willing to share. This would be particularly true if it were a second marriage and there were children from each marriage.
Probably the first thing to do to prevent an issue is to not allow the money to change your life significantly. At first, simply place the money in a broad index fund (like a S&P500 fund or a total market fund). If left alone, while there may be some dips and surges in value from time-to-time, in general it will sit there and grow. The money will be there in the future without a lot of “care and feeding.” After a while you can spread it out into a few funds or even invest in some individual stocks to provide more diversification and protection.
Once you become comfortable having the extra money, begin using it to improve your financial picture. Draw some of the income from your pipeline and use it to increase your retirement fund contributions, contribute to college funds, or pay cash for quality used cars instead of financing. Then, begin to use some of the income generated by the money to enhance you life each year. Perhaps replace your furniture as needed with nicer things, upgrade your kitchen appliances or your bathroom counters, or make other improvements to your house and yard. You could also use a portion of your income to take a few special vacations or just add to your grocery funds so you can have steaks a bit more often and buy more of the name brands. The important things are to not spend any of the principle and to not let it cause you to become wasteful or reckless. Perhaps draw a specific portion of the income (like 50%) each year for life enhancement and reinvest the rest.
The second thing to consider is breaking down financial barriers between you and your spouse. Remember that you became “one” in marriage, which means there is no more personal property or “mine and yours.” Separate accounts breed ill feelings, resentment, and distrust. It also tends to prevent the important conversations since how we spend our money is often an embodiment of where our priorities lie. Preparing a budget and discussing large expenses regularly opens up the lines of communications and helps a couple move forward together.
A final thing to consider is increasing your personal giving. Perhaps the best way to prevent oneself from becoming selfish is to give money away regularly. This helps remind you that you are really just managing the wealth anyway. You could even create a special pipeline for giving and then give away the income each year on whatever causes seem worthy. Remember also to include some personal giving, like discretely paying for someone else’s gas at the gas station, leaving some oversized tips at restaurants for good service or helping out friends and neighbors who are dealt a difficult blow by fate. Only giving at church or to organized charities misses out on all of the fun.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.