Can I (Legally) Avoid Paying Tax on Dividends? (2024)

Many of us dream about receiving a financial windfall but the majority of us won’t know what to do with the money when the time comes.

A financial advisor can help you manage an inheritance or other financial windfall. Find a fiduciary financial advisor today.

According to New York Life’s Wealth Watch Survey, only 42% of adults who expect to get some kind of inheritance said they feel very comfortable handling the new wealth that will be passed down. In addition, the survey found women are nearly twice as uncertain about managing an inheritance. While 12% of men who expect an inheritance said they had doubts, 23% of women said they had fears.

How Much Money People Expect to Inherit

One reason that people lack confidence in managing their eventual inheritance may be the size of the anticipated bequest. The New York Life survey found that, on average, people expect to receive a whopping $738,724.23.

“Navigating competing priorities and family dynamics while grieving can make it even harder to know where to start or where to get reliable and objective advice,” said Suzanne Schmitt, head of financial wellness at New York Life.“While Baby Boomers are the most likely generation to say they prefer to get guidance from a financial advisor or tax professional (29%), Gen Xers and Millennials, two cohorts set to inherit from Baby Boomers through 2045, could benefit from seeking professional advice, too,” she also said.

Then again, data across various studies shows that people’s expectations of their eventual inheritances are often misaligned with what they’ll actually end up receiving.

The Great Wealth Transfer

However, trillions of dollars will be inherited in the coming years in what’s being called “The Great Wealth Transfer.” The massive transfer of wealth will see the aging Baby Boomers pass as much as $84 trillion, primarily to Generation X and Millennials. To put it in perspective, that amount of money is more than 10 times the combined gross domestic product of California, Texas and New York.

According to the statistics compiled by New York Life in the study, this wave of wealth transfers is already underway:

• 17% of adults received an inheritance over the last 10 years

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• 15% of adults anticipate receiving an inheritance in the next 10 years

• 71% of the people who anticipate receiving an inheritance expect it to come from their parents or guardians, while 21% anticipate it coming from a spouse

Meanwhile, the majority of people who anticipate an inheritance expect to receive cash. Forty-three percent expect to receive owned property like a house and 28% anticipate receiving investments like stocks and bonds. Nearly a quarter of people (24%) who think they’ll receive an inheritance expect proceeds from a life insurance policy, while 21% expect jewelry or other family heirlooms, and 14% expect to inherit an annuity.

The top priorities for beneficiaries of these windfalls aren’t surprising. The first use of the money is to pay off debt (37%), followed by adding money to retirement savings (35%) and preserving the inherited assets so that they can be passed down to the next generation (26%). When it comes to retirement, however, 44% of adults say that they don’t have the support they need to navigate the financial challenges.

“The data show us that people continue to be focused on the basics — paying down debt, building emergency savings, and contributing to their retirement — but it can feel incredibly difficult to plan for longer-term goals like buying a home, growing your family, or retiring when day-to-day challenges are occupying your time and attention,” Schmitt added.

Bottom Line

Receiving any kind of financial windfall will challenge your thinking about how to manage the new-found wealth. In fact, less than half of the people who expect to receive an inheritance say they’re very comfortable managing it. Whether it’s a small inheritance or a big lottery payout, experts advise against making impulsive decisions around the windfall.

Financial Planning Tips

• Balancing immediate needs, such as paying down debt and helping family members, against future needs, such as retirement and passing on wealth, can be a challenge. A financial advisor can help strike the right approach to making a plan that works for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. Get started now.

• Fidelity recommends that you have 10 times your annual income saved for retirement by age 67. To find out if you’re on track, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.

• Get retirement planning and investing tips Tuesdays-Fridays with the SmartMoney Minute. It’s 100% free and you can unsubscribe at any time. Sign up today.

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