Overcoming 'Money Shock' From An Inheritance Windfall By Judy Martel
Chuck Collins, great-grandson of packaged-meat magnate Oscar Mayer, still recalls the day more than 30 years ago when his father informed him that he would inherit a substantial sum at age 21.
“I remember feeling a little bit of dread,” the 53-year-old said. “Even though I knew my parents were affluent, I was mentally geared to work for a living.”
It’s not that Collins’ parents didn’t educate him about wealth; on the contrary, he said they did a pretty good job. “I got the ‘facts of life talk’ when I was 12 and the ‘facts of finance talk’ when I was 15 or 16.”
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Collins said his biggest fear was that the inheritance would separate him from everyone else. “I had internalized other people’s attitudes toward wealth, which were either resentment or undeserved fawning.” He added that he didn’t want to be defined by something that happened in the late 1800′s, when his great-grandfather founded the company.
Overcoming ‘money shock’
While Collins’ negative reaction to learning about his inheritance may be at odds with that of many people who believe a windfall would solve all their problems, it’s not unusual, according to experts.
“We call it ‘money shock,’” said Susan Bradley, author and founder of Sudden Money Institute in Palm Beach Gardens, Fla. “Post-traumatic stress is another good name for it.”
Whatever you call it, it’s the overwhelming feeling that the inheritance is about to change your life in ways you can’t even anticipate—and not always in a positive way.
Collins decided pretty quickly that he didn’t want the money to alter who he was. He had access to only the income from his inheritance trust at age 21, but by his mid-20s, when he gained control over its entirety, he had decided to give it all away.
He’s earned his own way ever since as an author and expert on economic inequality and taxation. In 2008, he co-founded Wealth for the Common Good, a network of business leaders and wealthy individuals promoting fair and adequate taxation.
By the time he was in his early 20s, Collins said, “I felt some confidence that I could make my own way and there were others who needed the money.” After he had donated it to a variety of community foundations, he felt a sense of relief.
“It was the first decision of my adult life and I felt like I was doing it from a healthy place,” he said. “I didn’t want to be seen as a bag of money even though I was born into those circumstances.”
Not everyone has the desire to donate their entire fortune to charity, as Collins did, especially if they are reaching a point in life when the money can be put to good use—for college costs or early retirement, for example. In those cases, it’s critical to figure out how to handle both the emotions around inheriting a bundle, as well as to obtain the necessary financial knowledge to manage the money.
Allowing reason to trump emotion
One of the biggest reasons people lose a windfall is that they let their emotions take over and they lack a financial plan.
Bradley counsels inheritors to avoid thinking about their windfall from a technical or money-management view until they’ve addressed the personal side of it. “People will focus on the amount of money involved, saying things like, ‘Is $3 million enough to retire?’ Or ‘$100 million—wow, I’ll never have to work again.’”
Instead, they should first focus on the emotions that come with a windfall. When they don’t, it can lead to ridiculous financial decisions, Bradley said.
For example, she counseled a client who had received an inheritance of $15 million, but had expected $25 million. This discrepancy sent him into an emotional tailspin that skewed his financial perspective, she said.
Despite being a highly paid executive who was experienced with finances, he began to worry that he didn’t have enough money.
“When he said he was thinking of pulling his kids out of college because he wasn’t sure he could afford the tuition, that was the tipoff that something else beyond the money was happening,” Bradley said. It’s not a matter of logic at that point, she added, but a primal human response to change.
Adapting to change armed with a plan
Bradley also advocates developing a plan, preferably with an independent third party involved. In a synopsis of a process she calls triage, she said the first step for the inheritor involves gaining perspective by discussing emotions about the money with a qualified third party.
Inheritors are then told to make a list of fears, both emotional and financial, and the likelihood that any of them will happen. Finally, inheritors need to figure out which of those fears are controllable. Once they’ve done that, they’ll understand how to use the money to best fit their goals, she said.
“Triage really helps you look at the negatives and what can happen,” said Bradley. For example, some people wonder how to get out of a job if they don’t want or need to work anymore. Others need advice on how to address what happens to the balance of power in a relationship if one spouse inherits.
Bradley suggests inheritors begin the triage as soon as they know about an inheritance, even if they don’t know the exact amount. “It’s better to start the process of adapting right away.” she said.
While it may seem counter-intuitive to consider negative implications of a windfall, an inheritance is a significant change, and like all changes, it should be planned for. Having a sound plan can ensure that a financial blessing does not become a family curse.
Judy Martel is a senior editor at Bankrate.com who has written about wealth for the past several years. She is the author of The Dilemmas of Family Wealth: Insights on Succession, Cohesion and Legacy, published in 2006 by Bloomberg Press.