In most cases an individual is at least somewhat aware that they would be the beneficiary of someone’s estate. Inheritance often comes from parents or grandparents, however there are situations and circumstances where the inheritance is a surprise. Eighty-six percent of investors expected their inheritance, according to recent research from Spectrem Group. Among the small percentage that were surprised by their inheritance, the vast majority of the inheritance came from parents or extended family.
An inheritance that is a surprise can often be allocated differently than an inheritance that is expected. Among those individuals who were surprised by their inheritance 91 percent invested part of it, while just over a third saved the money for children/grandchildren. Less than a quarter of those who expected an inheritance saved the money for children/grandchildren. Only three percent used the inheritance to pay down debt, while 14 percent of those who expected an inheritance utilized the inheritance to pay down debt.
Financial providers need to be aware if a client were to receive an inheritance, expected or surprised. Understanding how these clients are most likely to use their inheritance is critical to providing the guidance clients may need. When an inheritance is not expected, investors are more likely to invest in riskier products and services than those clients who expected their inheritance.
Fifteen percent of those investors who were surprised by their inheritance began using an advisor, when before the inheritance they didn’t have one. Over half of investors who were surprised by their inheritance continued to use the same advisor they had prior to the inheritance. Only three percent of investors who were surprised by their inheritance continued working with the advisor who handled the inheritance.
Surprise inheritances can often cause wealthy investors to make changes to their own estate plans. Investors who received a surprise inheritance are more likely to have created an estate plan than those who have only received an inheritance they expected. These surprise inheritors are also far more likely to involve a financial advisor in the development of their estate plan. These investors are also more likely to have created a trust to help with the inheritance process.
These investors take a different approach to the inherited assets and to their own estate planning than individuals who expected their inheritance. Advisors need to be aware that very few inheritors who were surprised by the inheritance work with the advisor that helped with the estate distribution. Advisors who do not have a relationship with the beneficiaries of their clients need to actively work to develop the relationship with the next generation, through providing educational materials, complimentary estate plans, encourage beneficiaries to be active in future meetings and offer a discounted fee structure to the next generation.