top of page

Five Steps to Take with a Recent Inheritance

Inheritance can often feel like a double-edged sword. Learn how to manage both the emotional and financial toll of an inheritance.

Inheritances are complicated. While the financial windfall opens up new possibilities, it also brings forth emotional and financial complexities that need careful navigation. In fact, while emotions and grief are high, it’s unwise to make any major financial moves. Instead, take time for bereavement before moving forward with any critical decisions with your inheritance. When you're ready, consider these steps to navigate what to do next:


Step 1: Take a Breath and Avoid Spending as a Coping Mechanism


Losing a loved one and inheriting money is deeply complicated, with feelings ranging from grief to excitement. Before diving into financial decisions, take some time to process your feelings. Seek support from friends, family, or even a counselor if needed. Understanding and managing your emotions is crucial for making clear-headed decisions about your financial future.


While you grieve, consider placing your funds in a high-yield savings account until the emotional dust settles. Avoid impulsive purchases as a way to cope. According to Dennis McNamara at wHealth Advisors, "In the fog of grief, I've witnessed some individuals make impulsive purchases as a temporary form of comfort or escape...which often leads to regret."


Step 2: Gather Information and Seek Professional Advice


To make informed decisions, gather all relevant information about the inheritance. This includes details about assets, liabilities, and any legal obligations. Consider consulting with a financial advisor, tax professional, and estate planning attorney. These experts can guide you through the complexities of managing inherited wealth, helping you maximize its potential while minimizing tax implications.


Justin Donald at Lifestyle Investor agrees--noting, “One mistake I’ve noticed is that people don’t hire a financial adviser. If someone who doesn’t have an advanced understanding of financial management inherits money, it’s a good idea to hire someone to help manage it wisely. A financial adviser can help people make the most out of inheritance, as well as save them the time and stress of managing it alone.”


Step 3: Create a Comprehensive Financial Plan


Developing a solid financial plan is essential for long-term wealth management. Set clear goals, such as debt repayment, investment strategies, and estate planning. Consider factors like your lifestyle, risk tolerance, and future financial needs. A well-thought-out plan provides a roadmap for making sound financial decisions and ensures the longevity of your inheritance.


For example, most people simply retain inherited assets in the form they receive them. If it was a mutual fund, they keep it as is; or they receive art or antiques, they simple store it. When capital passes from one hand to another, it's key to understand the nature and intent of those proceeds. What was the intent of the inheritance? Was a particular antique handed down as a family heirloom or intended to support the beneficiary's financial goals? Or was an investment tailored to fit a specific risk appetite of the benefactor that doesn't align with with the beneficiary's investment strategy? Ensure you're asking the right questions, determine its best use and deploy it accordingly.


Step 4: Pay Off High-Interest Debts or Diversify Investments


Many people spend their inheritance on "fun" expenses, such as cars, vacations and other luxury goods. While instantly gratifying, these are purely expenses with little benefit toward your future self.


Instead, use this inheritance as an investment for the future, such as paying off high-interest debt, setting aside a down payment on a house, opening a brokerage account, or even thinking about continuing education


Step 5: Update Your Estate Plan


Inherited wealth often involves changes to your estate planning needs. Review and update your will, trust, and beneficiary designations to align with your current circumstances. This ensures that your assets are distributed according to your wishes and minimizes potential disputes among heirs.


Conclusion


Inheriting money requires careful consideration and planning. By addressing both the emotional and financial aspects of your windfall, you can navigate this process thoughtfully. Seek professional advice, create a comprehensive financial plan, and make strategic decisions that align with your goals. With a methodical approach, you can turn your inheritance into a lasting windfall for yourself and future generations.

コメント


bottom of page