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Wealth Management

Six Steps for Managing a New Inheritance

By May 6, 2019June 3rd, 2019No Comments
6 Steps for Managing a New Inheritance(1)

An inheritance can combine two of life’s greatest challenges: money management and the loss of a loved one.  They are uniquely bittersweet, often balancing serious personal grief with significant financial gain.  An inheritance, even for those expecting one, can lead to questions about asset management, taxes, and the right courses of action to take.  Hesitation or haste with your responses can lead to missed opportunities and in some cases, much worse.  A simple search will return countless examples of people who spent it all in the blink of an eye.  It’s wholly possible to spend an entire inheritance – even a significant sum – much faster than you may think.

If you’ve received an inheritance, or are expecting one in the next several years, you’re not alone.  According to financial analysts, we are currently experiencing the largest generational shifting of wealth ever before in history.  According to a study on family wealth transfer by Wealth-X, baby-boomers will have transferred well over three trillion dollars in assets to their children (Millennials/Gen-Y) by 2026.  In the coming years, a lot of people will be placed in the difficult position of managing an influx of money, property, and assets while grappling with their own sorrow.  Few are equipped to manage major financial changes in stride; add a personal loss into the mix and it can be downright difficult.  Still, there are steps you can take to make the most of your inheritance and preserve what you have gained.

  1. Resisting Bad Habits

A sudden windfall of money is different than income earned through hard work or investment.  As such, it can be much easier to part with.  Even a modest inheritance can grant access to new levels of buying power.  It can be very tempting to start making the large purchases you’ve been dreaming about.  When thinking about a purchase with your inheritance, try to consider it as an investment, along with the impact that investment will make.  Cars, boats, and other recreational vehicles depreciate – rapidly.  They also typically come with ongoing costs for licensing, storage, and upkeep.  As investments go, those are pretty poor.  If you’ve received an inheritance, resist the urge to spend it just yet.  Don’t quit your job, don’t announce your new wealth, and pause on making large purchases.

  1. Paying Taxes

Inheritances are not protected from taxes.  Depending on your inheritance total, composition, and the state in which you live, you may be subject to several federal and state taxes.  Estate taxes are levied by the federal government on the total value of an estate before it’s distributed as an inheritance.  Inheritance tax is a state tax, levied by several states.  Depending on your state, and the amount of the inheritance you received, you may be subject to state inheritance tax.  Inheriting an IRA can lead to heavy taxes, and inherited securities and real-estate have taxes all their own.  The best defense is a good offense.  Speak to a financial advisor to ensure you are tax compliant to avoid trouble later on.

  1. Outlining Personal Goals

What do you want to achieve in one year?  Five years?  Ten years?  This could be your chance to pursue serious personal goals.  Seize the opportunity and develop short-, mid-, and long-term financial plans with the help of an advisor.  Craft strategies based on the value and composition of your inheritance to target your own personal financial goals.  Explore strategies for lifelong financial sustainability.  Consider establishing a charitable trust.  Send yourself or a family member to college.  This is a good time for considering any personal wishes your benefactor may have shared regarding your inheritance as well.  If your loved one wanted you to pursue something special, speak to an advisor about creating a realistic plan for getting there.

  1. Boosting Savings

There’s more to savings than a savings account – although that’s still preferable than keeping your inheritance in stacks of cash around the house.  Placing your inheritance into equity and other assets can help preserve it.  Sometimes, spending money can help you save even more.  Debts can easily interfere with strategies for savings.  High-interest debts, such as a credit card or short-term loan, have vampiric drains on finances.  Rather than investing in a savings account paying you 1% interest, consider paying off the debt charging you 18%.  On the other side, using your new and enhanced buying power to take on new debts can lead to trouble.  Bigger assets not only cost more to buy, they also cost more to keep.  Higher taxes, maintenance costs, and more can completely consume an inheritance, saddling buyers with higher payments and expenses than they can manage long-term.

  1. Planning for the Future

With your feet firmly under you and your goals in place, set out on the path for financial independence.  Money, even a large lump sum, can disappear quickly.  Develop an emergency fund, make sound investments, and plan for retirement.  Is your inheritance cash, property, artwork, or another asset?  Explore the best financial tools for preserving your inheritance, pursuing the goals important to you, and providing for your family.  Placing your inheritance value into intelligent, long-term investment vehicles can help preserve your vision for the future.  Practicing smart tax strategies can help boost financial sustainability.  Speak to an advisor to learn more about how to best manage your inheritance today, and well into the future.

  1. Planning an Estate

By developing an estate plan, you may be able to help protect your inheritance.  The best-laid plans can always be interrupted by chance; an estate plan can seek to protect your assets.  Estate plans determine the fate of assets and tend to their tax obligations, should you die or become incapacitated.  An estate plan can be drafted to assign an executor, arrange charitable giving, designate beneficiaries and much more.  More than preserving your wealth, an estate plan seeks to protect your loved ones from excessive taxes and ambiguity regarding asset allocation.  It’s a subject few enjoy approaching, but the confidence gained in return for developing an estate plan can be well worth it.  To learn more about planning your estate and to arrange the necessary documents, speak to a financial advisor.

Take your time and ask questions.  Make the most of the gift left to you.  To learn how best to approach your own inheritance, speak to a professional.  For more information and other intelligent financial insights, visit

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There can be no guarantee that strategies promoted will be successful. This information is not intended to be suitable for individualized tax or legal advice. We suggest that you discuss you specific situation with a qualified tax or legal advisor. #1-845908