Finding your answers to these deceptively simple questions could help.
Are you fully prepared for the blessings and responsibilities that come with inherited wealth?
We find that it helps beneficiaries to make the most of the wealth their families provide if they ask—and find their own unique answers to—three deceptively simple questions: What do I need to know? What do I need to have? What do I need to do?
We offer this quick look at how beneficiaries might optimize their inherited wealth based on our two centuries’ worth of experience helping families that have significant fortunes.
What do I need to know?
A good first step is to make sure you have all the information you need. Some of it lies with others; some with you.
Discover the goals your family’s wealth creator(s) have for the funds you will steward. Can you speak openly with your elders about what they expect and what they value? What do they say, and what do their actions indicate? More insights might be gained from a family’s history and from learning how its wealth was built.
In addition, it is essential to understand the current and future resources available to you: amounts, timing and conditions placed upon the funds. If possible, you and your advisors should examine the wording of trusts and bequests of which you are (or will be) a beneficiary.
Then it would be wise to look within. Identify your own goals, and prioritize them honestly. To do so, we find it helps to envision what you want your life to look like in the near, medium and long terms.
For each goal, specify its:
- Label (e.g., buy a home, retire at a certain age, pay for children’s education)
- Dollar amount (i.e., how much each goal will cost)
- Timeline (e.g., you may want to buy a home in two years or pay for your children’s college education in 15 years)
- Priority level—Where does each goal sit in your hierarchy of needs and wants? (e.g., perhaps you are open to buying a less expensive home so that you can retire earlier)
What do you need to have?
Plans and legal documents are essential.
Every adult should create, and keep updated, a thoughtful, long-term financial plan that will give them and their advisors insights into the decisions they will make over their lifetimes, including, for example, investment allocation, lending, estate planning and retirement planning. Knowing your goals and their priority levels will help you build that plan in which you:
- Organize your resources and goals into “buckets,” depending on their timelines, priority levels and purposes. For example, you may have buckets for liquidity, lifestyle, legacy and perpetual growth. (For more of our insights into our intent-driven framework, see “The bucket list: How to organize our money with intent.”)
- Examine the goals and resources in each bucket, then determine whether and how you will achieve those goals. Each bucket can have a specific investment allocation—the appropriate risk/return expectations, and investment products and strategies that are most aligned with the goals and resources in that bucket.
In addition: No matter your age, if you have or expect to receive wealth, you should have a core estate plan that reflects your intent for that wealth. It is not too early to put the right documents in place. You also should expect to update them whenever your life changes (e.g., if you get married, divorced or have a child).
It is also critical that you make sure you have the right beneficiary designations on retirement accounts, and that you do a thorough review with professionals about what types of insurance you might need.
What do I need to do?
At least once a year, it’s wise to re-evaluate your plan to make sure your resources and goals are aligned. Has anything changed to warrant a change to your plan? Are you paying attention to tax-efficient asset location (e.g., contributing to retirement plans and a health savings account)?
Also look ahead and plan for the future: Do you foresee any changes that might impact your finances? What experiences might you want to have? Do you anticipate changes in your lifestyle? What legacy do you want to leave for your descendants?
All of your financial life deserves your attention. Regularly reviewing banking transactions facilitates your awareness of your spending and allows you to check for fraudulent activity.
Ann answers the three questions
Because it’s sometimes helpful to see how advice plays out in someone else’s life, let’s take Ann, age 30, as an example. Ann is about to get married. She and her fiancé, John, want to buy a home. They plan to have children.
Ann’s parents own and run a successful business. They’ve made Ann the beneficiary of a trust for her and her descendants.
Ann spoke with her parents about the trust. It contains a standard clause that directs the trustee to disburse funds for the beneficiary’s “health, education, maintenance and support.”
Ann already knew her parents valued hard work, education and becoming a well-rounded person. In her conversations with them about the trust, Ann learned that they hoped she and her husband would support themselves with their own earnings and use the trust funds primarily to educate their children and successive generations.
Ann’s parents also revealed that any future gifts for Ann would be in trust. Their thinking: If Ann ever was to get divorced, her inheritance would not be part of any division of marital assets. With that knowledge, Ann and John can have an informed conversation about whether a pre-marital agreement is right for them.
Ann and John also discussed their current and future resources, and savings habits. Both of them contribute to their respective 401(k) accounts, but not to an IRA. Neither of them has any debt. The couple discussed the location, cost and timeline for the home they hope to buy. They were specific about lifestyle choices for the near term and for when they have children.
Working with their financial advisors, the couple prioritized their goals and developed a financial plan. They decided which accounts would be jointly or individually owned, agreed to maximize contributions to their 401(k) accounts and a health savings account, and also to begin contributing to IRAs, and agreed that they will thoughtfully structure debt on the purchase of their home. They also set a “savings goal”—the amount of their earnings that they will invest annually. Finally, they met with an attorney to execute a core estate plan.
Then, to make sure they will stay on track, they set up annual appointments with their financial advisors.
Finding your answers
You can ask your J.P. Morgan team to help you find your answers to the three questions.
At J.P. Morgan Private Bank, you can have a one-on-one relationship with an unbiased banker who will help you organize, manage and enhance your financial affairs.
We provide you with special access to all the classic services offered by banks and financial planners—planning, investing, borrowing and banking—in one place. Then we do more. We connect you to unique opportunities and people.
And, most importantly, we help you identify and reach the goals you set.
