It's just money, right? Not if it belonged to someone you love and miss. The emotional challenges of planning for money that never really feels like yours are real, and we respect that.
You might understand how a lottery winner could squander their winnings, after all, "it wasn't really their money to begin with, they didn't earn it." However, when we're considering an inheritance someone did earn it, and probably someone very important to you.
Emotions are Dangerous
Even at the best of times our emotions have been known to let us down, but when we've inherited money from someone we love the stakes are much higher. When investing emotions are often the enemy. Fear and greed are the typical driving forces in the investment markets - at least in the short term. It takes a long time for rational and cooler heads to prevail. But it's always the rational approach that wins in the long run.
“The stock market is a device to transfer money from the impatient to the patient.” - Warren Buffett
However, it's all but impossible to be patient and rational when "mom and dad's money" is on the line. For this reason, I encourage people who have inherited money from family to more cautious than they think they should (or could) be.
Naturally you don't inherit an investing brain when you inherit money, so your ability to manage the money well will be dependant on the skills you already have. If you don't have the skills to manage $10,000 then you're not going to be able to manage $100,000 just because it has suddenly landed in your lap. If you've never bought a stock, now is not the time to start. If you have, I may humbly suggest that this isn't the money you should be gambling with.
Build in Failsafes
Regardless of the investment approach you decide to take, it's important to build in failsafes. You may want to take investment markets out of the question by using products that have guaranteed rates of return, or at least limit any possible losses. You should also stick to products you can understand. If it's too complicated for you to really understand clearly, then it's probably a bad idea (some of the safest investments are also some of the simplest, but they have downsides too).
One recommendation that I can really get behind is spending only the returns earned by the inheritance, and not the inheritance money itself. It's easy to get carried away and spend the money in a few lump sums (renovations are a common method to blow inheritances) but if you can only spend the returns then that can work out much better for you.
For example, if you inherit $100,000, in today's dollars it doesn't take long to spend that much on a renovation, and then they money is gone. Sure, you may have a new kitchen or stylish back yard for entertaining, but those things will wear with time and the money has been spent.
Instead, if you invest the money and it earns $5,000/year (as an example) then over the next 20 years you can spend $100,000, and still have the original $100,000 invested. That sounds like a better idea to me.
Charitable Giving is a Popular Option
When inheriting money, many people realize they don't really need the money for themselves. Of course, some people desperately need the money and I'm not undermining that, but if we assume that the second parent dies at age 90, then their kids are probably around 60 years old. If the kids have managed their money well, they should be approaching retirement with all the necessary savings set aside. So what do do with an inheritance?
If your family didn't choose to leave a legacy, consider making a donation in their memory.
Sure, the kids could give the money directly to their kids (the grandkids). Afterall, they're probably in their 30's and could use the cash, but that may not be the best thing for the family, or may not jive with mom and dad's approach to money. Donating money to charity can have a very positive effect in a few ways, not the least of which is getting a significant tax deduction. The earlier you make these kinds of plans, the better, so speak to an advisor as soon as you can if charity is part of your desires.
Above all, take time to realize that money inherited from family has more attached baggage than money you've earned yourself. You need to be diligent and intentional in your decision making to ensure you're not falling prey to emotions or grief.