7 Common Inheritance Mistakes to Avoid

The period following the death of a loved one can be a tumultous time. Dealing with death and receiving an inheritance brings mixed emotions. The loss of a loved one is distressing, and while added funds can bring relief, it can be hard to think and plan objectively.

After receiving an inheritance, some people blow through it surprisingly quickly. Here are some mistakes people make when inheriting money and how to avoid them.

1. Not Factoring in Potential Inheritance Taxes

Depending on the size of the inheritance, you may get bumped into a higher tax bracket than you were previously. You could also be on the hook for capital gains taxes; if you've inherited property, you also may owe capital gains. Consider working with an attorney who specializes in estate planning in addition to talking with a financial advisor or an accountant before you spend any of your inheritance.

2. Failing to Make a Budget

If you don’t have a budget and are not used to managing money, you may not be prepared to handle significant funds. This could lead to overspending and a quickly disappearing inheritance. If you already have a budget, factoring in your new funds will help you see how it will affect your saving and spending strategy.

3. Spending Too Much

When receiving a large sum of money, you may assume that it will easily last. All too often, people fritter away inheritances by making major purchases right away, such as cars, boats, or vacations. Even if such purchases don’t seem all that significant at first, the costs can accrue quickly, especially if items you've purchased have additional costs, such as maintenance and insurance.

Stay grounded and take time to consider whether you truly need what you’re buying. Also, think through how much more money you could have in the future if you invest the money instead of spending it now. If you know how much you will inherit before you receive it, you can create a budget in advance.

4. Not Paying Off Debts

Paying off debts should be your first priority if you inherit a large sum of money. Paying off your mortgage, credit cards, or student loans will give you more freedom to do other things. You will still need to balance the debts you decide to pay with the amount of money you’d like to invest for the future.

5. Losing Other Income Sources

For people relying on asset-based or income-based government benefits, such as Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), receiving an inheritance could end up disqualifying them from these crucial public assistance programs. The benefactor needs to plan for this before passing on the inheritance. Establishing and funding an appropriate trust will reduce the possibility of this happening.

6. Not Saving Enough

Suddenly coming into a large amount of money can lead you to think about all the things you can do with it now instead of how you can save and invest for your future. After paying off debts, create an emergency fund with enough money to live on for about six months. Once you have done these two things, start increasing your contributions to your retirement accounts.

7. Not Getting Expert Advice

An inheritance, especially a sizeable one, can help you achieve financial security and allow you to pursue a dream career or some other life goal. However, an inheritance can vanish surprisingly quickly if not managed well. Before doing anything with your inheritance, consult with a financial advisor, an accountant, and an estate planning attorney.

How Estate Planning Attorneys Can Help

Consult with your estate planning attorney to ensure you make smart investment decisions with your inheritance. Together with a financial advisor, an estate planner can provide valuable advice on diversifying investments and minimizing risks to maximize the potential growth of your inheritance. Seek out both these professionals to manage your inheritance wisely and plan for a financially healthy future.

You also can work with an estate planning attorney to get assistance in setting up a trust to protect your newfound money (or property). Additionally, partnering with an estate planner can mean knowing how to safeguard your inheritance for future generations.

Keep in mind that the estate planning process may prove useful in many ways other than protecting your inheritance. A good estate planning attorney can collaborate with you to create a detailed estate plan. This may include drafting a last will and testament, durable power of attorney, medical directives, and other important estate planning documents.

By connecting with your estate planner, you can make informed decisions that align with your financial goals and secure your financial future.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Elise Lampert, Esq.

Law Office of Elise Lampert

9465 Wilshire Blvd. | Suite 300 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com

 

Avoid a Conservatorship With a Durable Power of Attorney

A conservatorship protects the interests of an adult who can no longer make decisions for themselves. A conservator is someone (or several people) with the legal authority to make decisions and act on behalf of another.

The Conservatee is the adult who needs help with their finances, health care, living arrangements, and daily affairs. This individual may need assistance because of old age or physical or mental limitations. Common reasons for having a conservator of a person include situations where an adult is in a coma or has dementia or developmental delays.

Some conservatorships are broader than others. For example, a conservator may only have power over medical decisions, but not living arrangements or a conservator may only have authority over financial decisions regarding specific investments or property.

Note, however, that different states may use the terms conservator and guardian to mean different things. Getting legal advice from a local attorney is important to ensure you are addressing your specific situation properly.

Durable Powers of Attorney

Having a conservatorship is different from having durable powers of attorney. A durable power of attorney (DPOA) is a legal document. An adult can partner with an attorney to set it up in case they lose the capacity to make decisions at some point.

With a DPOA, you can choose someone – your “agent” – who would make important decisions for you.

The benefits of having a durable power of attorney as part of your estate plan include the following:

• ensures that someone you trust will be able to make important decisions on your behalf if you ever lose capacity

• gives you peace of mind knowing that your affairs will be handled according to your wishes

• helps avoid the need for a court-appointed guardian or conservator, which can be costly and time-consuming

• allows you to maintain control over your future even if you are unable to make decisions for yourself

To include a DPOA as you develop your estate plan, seek the help of a qualified estate planning attorney.

In contrast, conservators are put in place by court order. They serve to manage the affairs of those who can no longer make their own decisions about health care or finances. Without a durable power of attorney reflecting your wishes, the court must appoint a conservator or guardian.

What Does a Conservator Determine?

A Conservator of the estate guides financial matters, while a Conservator of the person manages personal and medical decisions. In most circumstances, one person may be in charge of both estate and personal or medical conservatorships. Both types of conservators follow court supervision and are held accountable to that court.

This court supervision acts as a safeguard, preventing mismanagement of property or taking advantage of the ward. The conservator must report the details of their actions to the court on a periodic basis.

Frequently, courts will require the conservator to seek permission before making major decisions. This can include decisions such as terminating life-support or requiring medications, or selling real estate or other property. Additionally, a financial guardian must often post a bond as an insurance policy protecting the ward's estate from mismanagement.

The Conservator Role

Conservators must serve the conservatee’s best interests. They must be competent and trustworthy. Yet court proceedings can be time-consuming and expensive. Professional conservators (e.g., attorneys) are often pricey, too.

By adequately preparing durable powers of attorney before a physical or mental health crisis occurs, you can avoid a conservatorship.

DPOAs provide direction for decision-making based on your wishes by the designated power of attorney(s). Without these documents, the court appoints a conservator related to the conservatee who is available to serve. This might be their spouse, adult child, or another family member.

A conservator will act until the court issues an order ending this responsibility. This usually follows:

• The conservatee’s death

• The conservatee no longer requires this level of assistance

• In the case of financial affairs, all assets are spent

• The conservator can no longer handle the responsibilities or resigns

• The court removes the conservator following a successful legal challenge by the conservatee.

Work With an Attorney

To avoid an unwanted conservatorship, draft your DPOA while you are young and have all your faculties. Although it’s unpleasant to consider, you never know when your life can change drastically. You can easily establish a durable power of attorney when you execute other estate planning documents, like a will.

Meet with your estate planning attorney to discuss concerns you may have regarding potential physical or mental illness. They can assist you in choosing the right representative, someone you can trust to make decisions in your best interest. This way, you will have peace of mind knowing that future decisions will reflect your wishes.

Likewise, if you are facing issues with a loved one who is no longer of sound mind, an estate planning attorney can help.

Contact us

Questions? Contact us at Elise Lampert, Attorney at Law

   

Submit

Elise Lampert, Esq.

Law Office of Elise Lampert

9465 Wilshire Blvd. | Suite 300 | Beverly Hills , CA 90212

Phone: (818) 905-0601 / Email: elise@elampertlaw.com

https://www.eliselampert.com