How to Handle an Inheritance

An inheritance can improve your financial future, but too many people fail to plan adequately, reject the advice of professionals and make tragic mistakes.

If you plan appropriately for your inheritance, you can ensure that you maximize its value and honor the intentions of the loved one who left it to you.

Here are four things to think about if you expect or recently received a bequest from a loved one. The right planning can bring peace of mind and freedom from regret about your financial choices and make a lasting impact on future generations.

1.     Take the time to understand your feelings about the inheritance. Grief over the loss of a loved one might overshadow the opportunities that an inheritance creates. If grief holds you back, it can be hard to look at account statements, contact estate planning attorneys and make responsible choices. Receiving the inheritance money might feel opportunistic for some. For others, the grieving process leads them to make destructive choices like over-spending money that ought to be saved and invested.

You might have a deeply seated belief that money should be hard-earned, and the inheritance might lead to guilt, depression and financial paralysis. If you take the time to grieve appropriately and allow the strong emotions to pass, you can separate these debilitating beliefs from your thoughts about the money you received and allow the gift to bring lasting value to your life.

2.     Don’t squander it. It breaks my heart when people come to see me after they already squandered most, if not all of the inheritance. The nature of a one-time financial windfall is that it cannot be recovered and isn’t repeated.

Before you have a chance to spend your windfall lavishly, it pays to seek assistance and commit yourself to using the gift responsibly.

3.     Make a plan and get help. A financial planner can help you determine how much you need for retirement and help you invest the inheritance appropriately to help you move closer to your retirement goals. I strongly encourage you to consider partnering with a financial advisor as soon as you hear you are coming into some money.

You might believe you can handle the windfall on your own. People who receive lump sums of money and don’t already have a trusted relationship with a financial professional often regard the industry with distrust and believe they can manage the money. Too often they can’t because they frankly don’t have the background to construct good-long-term portfolios and deal with complex matters such as taxes. Proper planning and professional investing to secure your financial future justifies the fees good advisors charge.

4.     Implement your plan. It isn’t until this phase of the process that you know how much, if any, of your inheritance you can spend and still achieve your financial goals. For many, when we think of receiving sums of money, we just receive and spend.

Don’t skip the interim steps detailed here that maximize your opportunity to reach your goals.


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Hilary Martin, MBA, CFP, is a financial planner at The Family Wealth Consulting Group, a fee-only planning firm providing personalized advice, guidance and service to successful individuals and their families in Silicon Valley. She regularly writes about personal finance on the firm’s blog, Healthy Wealthy Families. You can find her on Twitter @WealthyFamilies.

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