Need Help? Call (303) 333-HELP
The Source Podcast Archive

Advanced Search

Close Search

7 Smart tips on how to effectively manage an inheritance

A majority of baby boomers will receive an inheritance at some time during their lives, with the average inheritance estimated at almost $65,000. Should you be the recipient of a family financial legacy, here are 7 steps you can take to be sure your inheritance is managed smartly.

1. Re-examine your financial goals. Upon receiving an inheritance, your financial picture has changed. What was part of your financial plan before the inheritance may look much different after. Seek financial guidance to provide you with the direction you need to determine how to invest your inheritance, either for short-term gain or long-term benefit.

2. Review your estate plan. If you inherit a significant amount, review your estate plan to evaluate what strategies should be put into place to protect your increased assets. Estate tax may not have been an issue before, but it may be an issue now. If you inherit via a trust, you may have very different (and much more beneficial) options than if you inherit via a will. If you inherit a valuable collection of art or jewelry, look into ways to protect that too. Your benefactor may have wanted to ensure certain family heirlooms—whether valuable jewelry or invaluable photos—are kept within the family versus with spouses of family members.

3. Get rid of debt. If your inheritance is significant enough to allow you to pay off debt—especially credit card debt and loans with high interest rates—consider paying all the debt off. Actually imagine what it would be like to not have a car payment. A great way to evaluate this question is to weigh the current cost of your interest expense versus the value you have inherited. As a general rule, it is always better to be debt-free than debt-laden.

4. Have an emergency stash. If you do not have at least three to six months’ worth of living expenses set aside, consider parking some inheritance money in a rainy day fund. You’ll have a much better cushion if you or your spouse are unexpectedly laid off or have another family matter to attend to that results in you being away from your job. Life can be much more stress-free knowing you don’t absolutely have to go back to work on Monday if something unexpected comes up.

5. Take your time. Take the time to consider the best use of your inheritance before you may any major moves. Inheritances are considered separate marital property, at least initially—but only so long as you don’t mix up your inherited funds with your marital funds. If you are headed for divorce or merely want the peace of mind, it is prudent to put the cash in a separate account in your sole name. Then there will be no question who it belongs to (you, or jointly?).

6. Consult a professional. Before doing anything with your inheritance—especially with an inherited retirement account!—seek the advice and insight of a financial planner and estate planner. These professionals can help you navigate your new wealth and give you guidance on how to make financial decisions in a tax-advantaged way. This is especially true with inherited retirement accounts, which can have heavy income tax consequences if you do things too quickly without guidance.

7. Give yourself a treat. Feel free to use a small amount for a special “treat” such as a beach vacation or cruise around New Zealand. Keep in mind the cost of this treat in respect to the overall inheritance. The idea—enjoy yourself but don’t go overboard.

The main thread among all these tips is to seek advice and counsel before making any major decisions about your inheritance. There are many tips and tricks to consider in how best to preserve what your family has left to you. Nothing is so urgent that it can’t wait on trusted guidance.


Article contributed by Wills & Wellness.

Tags: , , , , , , , ,