Home' Trinidad and Tobago Guardian : November 8th 2015 Contents SBG16 PERSONAL FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 8 • 2015
Even experienced finan-
cial advisors can get
caught up in the com-
plications of dealing
with an inheritance.
After receiving an
inheritance from his mother that
included stock in a mining company
she favoured, it took Ken Moraif
months to sell the shares, even though
they were losing value.
"I had to get over the thought that
this is selling my mom," says Moraif,
senior advisor with the wealth man-
agement firm MoneyMatters.net. "It s
a very strong emotion."
On average, American retirees plan-
ning to leave an inheritance anticipate
giving about US$177,000 to their heirs,
according to a 2013 report by HSBC.
A fifth of legacies left to children in
the US were expected to exceed
Such sums of money can provide
huge benefits. But the chunks of cash
that often coincide with emotional loss
can also open up complicated invest-
While there is no one-size-fits-all
plan, there are several factors to con-
sider before putting the money into
the stock market.
First, get some help. The planning
process starts before the money comes
in, Moraif says. That may involve talk-
ing to an estate planning attorney; ide-
ally the same one who worked with
those giving the inheritance.
Also, heirs should look for certified
financial planners who work for a reg-
istered investment advisor, meaning
they have a fiduciary duty to their
clients and are not commissioned sales-
people, he says.
For people who inherit a sum bigger
than what they ve managed before,
Moraif cautions: "Don t do it yourself.
You could end up losing it all."
While some inheritances may be
fairly straightforward, some, especially
those involving larger sums, can involve
trusts that need to be funded properly,
he says. Simply moving the money into
the heirs names can set them up for
avoidable taxes and expenses, he says.
Cashing in an inherited individual
retirement account early could leave
one paying a mound of taxes. And there
may be surrender penalties involved
with annuities or taxes on their gains.
For heirs in their 50s or 60s who
inherit a portfolio from octogenarian
parents, its likely that the risk profile
of the investments is more conservative
than is desirable, Moraif says. Some of
the holdings the parents may have
owned for years may no longer be
sound investments, such as a company
that pays a small dividend but whose
stock hasn t changed in value for 15
years, he says.
After assessing the portfolio s appro-
priateness, it becomes a basic financial
planning exercise based on an heir s
risk profile, financial goals, tax bracket
and retirement target, he says.
Pay off debt and start saving. But
for many, it may be wiser to pay off
debt and establish savings before think-
ing about investing in the stock mar-
"Today, with so many Americans
facing significant debt, little savings,
and ill-prepared for the costs of retire-
ment ... this windfall serves as the reset
so many are looking for to help them
get back on track with their financial
lives and develop better financial habits
in the future," says Tracy Sherwood,
a senior financial advisor with the
financial planning firm Ogorek Wealth
Management in Williamsville, New
There s no investment one can make,
short of taking on substantial risk, that
will earn as much as the 16 per cent
someone may be paying on credit card
debt, says Janet Briaud, founder of Bri-
aud Financial Advisors in College Sta-
One caveat on paying off credit card
debt involves serial credit card users,
according to Moraif. If a person knows
they will probably run up their card
again, it s best to not let an inheritance
get sucked into their consumption
habits, he says. In that case, it s better
to let the credit card limits constrain
spending, he says.
After paying off credit card debt,
Briaud encourages clients to look at
other debt, such as high-interest college
"Paying off the loans is the same as
earning a risk-free rate equal to the
interest rate on the loan," Sherwood
Paying down a mortgage is also an
option, but Sherwood says most people
have probably already refinanced at an
attractive rate, given the low interest-
Next, establishing savings is key.
Depending on how secure one s job is,
Briaud recommends keeping an emer-
gency fund of three to six months of
living expenses in a savings account,
certificate of deposit or short-term
Also, people should use the money
to maximise, increase or start retire-
ment savings through an employer-
sponsored retirement plan or IRA,
Even though it is necessary to sep-
arate emotions somewhat from invest-
ing decisions, Moraif adds that a certain
amount of reflection is healthy.
"What really breaks my heart with
inheritances is when the person who
inherits the money squanders their
parents life s work," he says. "You have
a certain responsibility to the person
who left you the money to be a good
steward with that money."
Matt Whittaker is a journalist spe-
cialising in naturalresources coverage
whose work has appeared in The Wall
StreetJournal, Barron s and other inter-
national publications. He hasreported
from the Americas, Europe and Asia.
What to do if you receive an
inheritance (or win the Lotto)
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