Inheritance is stressful!

By January 23, 2017Case Studies

Clients, aged 68, with no previous investment experience inherit over $3 million from older sibling.

Peter and Mary had raised four adult children on a single family wage, when Mary inherited over $3 million from her eldest brother’s estate. They were age pensioners, with approximately $130,000 in savings and were living on age pension without complaint, but with a very simple lifestyle.

All that changed when Mary’s eldest brother died and left his entire estate to her. He was almost 90 years old and had owned a farm that had gradually been surrounded by expanding Brisbane suburbs. Upon his death the land was sold for a significant sum.

The estate solicitor referred them to FB Wealth Management as they were overwhelmed by the size of the inheritance.

There were two very significant challenges to address:

  1. Peter and Mary had no previous investment experience.
  2. They simply did not want to even think about their biggest concern – the loss of the age pension, which was an element of certainty and stability in their lives.

Peter and Mary attended our offices on numerous occasions during the planning stages. We reassured them that the loss of pension was actually a good thing. This required careful explanation and examples such as projections to convince them that they were now definitely in a better financial position.

Initially, meetings were conducted jointly with the referring solicitor, to provide them with reassurance from a trusted advisor. The solicitor was able to leave it completely in our hands once Peter and Mary’s confidence in us grew.

The financial planning process then revolved around ascertaining Peter and Mary’s financial requirements. In fact, much discussion including their four children, centred on encouraging them to spend money! They had lived steely for so long that it was a difficult habit to break, despite family encouragement.

Eventually they agreed to a new car (Holden!) And an overseas trip to Germany, their place of ancestry. They had no desire to move out of the modest family home, but did agree that someone else could now paint it!

Each of the children was gifted $100,000 and we were able to make provision for education expenses for nine grandchildren within the plans. It was agreed that this would be funded on an as needs basis rather than in a single lump sum, so they could enjoy giving on an ongoing basis.

Once actual plans were formulated, we discussed how funds could be invested to derive long-term returns sufficient to meet current and future financial commitments. Again, education was required to give Peter and Mary a basic understanding of risk and reward, plus explanation of the investments and their purpose in the portfolio.

The plan was implemented in stages, to reduce their anxiety over market risk. This stood them in good stead and over time they became quite familiar and confident with the portfolio. Even during the global financial crisis, despite initial unease, they maintained investment discipline throughout and during the subsequent recovery. Importantly, they had been educated and forewarned about the risks, they were well diversified in quality investments and met regularly for reassurance.

Peter and Mary have gradually increased their lifestyle expenditure, even though they are now in their early 80’s. Much of their life is centred around providing ongoing assistance to the children and they find great satisfaction in doing so.

They now have 11 grandchildren, the eldest of whom is now a dentist and has come to see us to obtain income protection insurance. Three of their four children are also now clients of the firm and we enjoy a strong trusting relationship with the entire family.

The investment capital has fallen marginally, but they can definitely afford another Holden!