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6 Things You Must do if Receiving Inheritance

Receiving an inheritance can be difficult for many. On one hand, you are dealing with the loss of friend or family member while, on the other hand, you may be receiving a substantial amount in assets. Paired with the emotional aspect, the options can often be overwhelming. I have found these 6 things to be a good starting point to make the process more manageable.


1. Take a deep breath and don’t allow your emotions to impact your financial decisions. You should speak with a third party such as a financial advisor who has experience with people in your situation. Together you have a much better chance at making a rational decision on what to do with your new financial situation. Each of the following tips should be discussed with a trusted and knowledgeable financial advisor in the context of your situation. These tips are general in nature and may need to be changed when applied to your own situation.


2. Emergency Savings: Make sure you have enough in the bank for emergencies. As a rule of thumb, consider keeping a balance that would cover 3-6 months worth of living costs plus any other one-time expenses you have coming up, such as a roof. For example, if you spend $7,000 per month and you will be needing a car soon, you may want  to keep a bank balance of $21,000-$42,000 for your cost of living expenses with an additional $30,000 for the car purchase (depending on your taste in automobiles). The less stable your income is, the more you may want to lean towards the six month number.


3. Debt: What are the balances and interest rates on your debts? It may make sense to pay some of the balances off to free up your monthly cash flow.


4. Invest: Consider investing some of the inheritance for retirement. If you or a spouse still have earned income from a job, you may be able to contribute to an IRA or Roth account. You and a spouse can each put up to $5,500 per year into an IRA or Roth or $6,500 if you are 50 or older. So if a couple is 50 or older, you can put up to $13,000 away for retirement per year. Your current and future expected tax situation will help determine which account may be best for you.


If there is still more inheritance that you would like to invest above the retirement account limits, you can always invest cash into an after tax or trust account. You can use the same types of investments. The main difference will be how the investments will be taxed. Saving in an after tax or trust account is still a very affective way to save for retirement.


5. Insurance: Look at your insurance needs and make sure you are adequately covered. If you were unable to afford adequate coverage before, now is a great time to make sure you are properly insured.


6. Estate planning: You have just seen first hand, the importance of having all your ducks in a row with your estate plan. Your new situation may require more complex estate planning strategies than you previously had. You may consider speaking with an estate-planning attorney to discuss your situation and goals. It may make sense for you to have a trust, especially if you have minors that would be beneficiaries of your estate.


As part of my services, I can help make sense of the options that lay in front of you. It all starts with your current situation and financial goals. Then we can begin developing a plan for whatever you may have inherited. 

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