Sun | Jun 13, 2021
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

Oran Hall | Managing an inheritance

Published:Sunday | May 9, 2021 | 12:08 AM

Receiving an inheritance can be life-changing. Perhaps that is why there tends to be such a fuss over property left by the dead. Yet, this life-changing experience is transitory for some people, so we will take a look at how the benefits can be more lasting.

An inheritance refers to assets passed down to beneficiaries from their owners after their death. There is a wide range of assets that can be so passed down, including property, stocks, bonds, money in the bank, art, antiques, and motor vehicles, and some of these assets can have significant value.

Making a will is a common way to pass on assets to beneficiaries who do not have to be just family members. For various reasons, some people bequeath assets to people who are not related to them by blood and to charities, for example. That is their absolute right.

It is important to provide for the well-being of dependants, especially if they are young and are not able to provide for themselves. It enables them to continue their normal lives and to equip them, through opportunities to complete their education, for example, to lead a useful and productive life later on.

Many benefit from inheritances but do not maximise those benefits because they are ill-equipped to manage the assets they inherit perhaps because they do not have the skills or temperament to do so. Sometimes they neither know nor understand the nature of the assets.

I recall an experience I had when I was a young stockbroker. A recently widowed lady and her daughter came to my office with what they considered to be just some papers that they had been advised to take to the office to get some guidance on.

The pieces of paper were share certificates in one of the top-performing companies then and even today. I calculated the value of the shares, and they suddenly realised that they were millionaires just on the basis of those shares.

It is important to let key members of a family know what your assets are and to encourage family members generally to have even a basic understanding of the features of those assets, particularly if they are financial instruments.

From the list above, which is not exhaustive, there are several financial instruments. The goal should be to know enough about them to make it unnecessary to depend solely on a financial professional to manage them.

Nonetheless, it is also important to seek good financial advice and to establish a solid plan on how the new assets are to be used and to be made to have value to the beneficiary over as long a time as possible.

Some beneficiaries see an opportunity to repair their financial position by reducing or eliminating debt, or to form the basis of a good portfolio of assets, or to further their education, or to acquire a home. There are many other productive uses to which liquid resources especially can be put.

But some see an opportunity to spend without considering how easy it is for their position to change negatively. To avoid this happening, it is advisable to make a plan detailing what can be done productively with the new assets and to give priority to the most important matters.

Some assets – real estate, household items, art, for example - should be insured. This means paying premiums, but that is the price for protecting against loss from fire and other risks. Tangible assets should be properly maintained to preserve their value and longevity.

Although some, like motor vehicles, lose value over time, others like art, stocks, and real estate tend to appreciate and increase the owner’s wealth as measured by net worth – derived by subtracting liabilities from assets.

Assets inherited should be added to the existing list of assets with their values. Certificates of title should be properly secured, and key family members, for example, should know where they are located. An up-to-date list of assets is useful, for example, when making decisions about passing on wealth to others.

An increase in assets improves the capacity to borrow to the extent that there are more assets that can be used to secure loans – for productive purposes, if necessary. Overexposure should be avoided, and loans should be serviced to avoid the loss of the assets.

Coming into possession of new assets also makes it imperative to make a will where none exists or to make a new will, taking into account the addition to the portfolio of assets.

It is important to make the best of an inheritance by managing the new assets prudently, insuring against risk where necessary, preparing to pass them on smoothly in the future – the primary goal being to improve financial well-being on a sustainable basis over the long term.

- Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com