A newly acquired inheritance brings about a range of emotions. While losing a loved one is painful, inheriting money can be a blessing. An inheritance can improve your financial situation and bring peace of mind—it can also be a reminder of your loved one’s legacy and their love for you.
As with any sudden windfall, sometimes people don’t know how to properly manage the inheritance they have received. In worst-case scenarios, the inheritance is blown in just a few years or even months—sometimes leaving the inheritor in more debt as a result of overspending.
You don’t want to risk the legacy your loved one left for you, so it’s critical to use these new funds wisely. Approach your inheritance thoughtfully and strategically, and give yourself the time it takes to work through this transition and to explore the options available to you.
Process The Loss Of Your Loved One
Before making any decisions about the money, you need to process the loss of your loved one. Failing to deal with your grief can result in emotional spending that compromises the money you’ve just received. If you give yourself some time, you may become more sensitive to your loved one’s wishes or have the chance to clear your head of complex emotions.
If your loved one spent their life building and protecting their wealth, they probably hoped you’ll do the same. Letting your inheritance sit for a minute can help you overcome the initial temptation to splurge on something like a fancy vacation or expensive new home. If it’s important to you to honor their legacy, don’t forget to take care of your own emotions to protect the wealth they’ve gifted to you.
Understand The Type Of Inheritance You’ve Received
It’s also important to consult a professional so you understand what type of inheritance you’ve received. Common types of inheritances include:
- A trust account or cash
- A retirement account such as an IRA or 401(k)
- A house or other property
Knowing the category of inheritance you’ve received impacts how you access the inheritance, any taxes that may be associated with it, and what your options are to move forward.
For example, if you inherit a home but don’t want to live in it, you may need to learn more about the local real estate market and recent sells in the area before deciding to sell the property. If you find that a capital gains tax would be too costly, you might explore another option, such as renting out the house or living in it temporarily as you assess your situation.
Likewise, inheriting a retirement account comes with its own set of obstacles, including potential penalties for failing to take required minimum distributions. Regardless of the inheritance you receive, it’s best to contact a financial professional who understands the intricacies of inheritance situations.
Evaluate Your Financial Situation
Once you understand the type of inheritance you’ve received, you’re better equipped to align your plans for the inheritance with your other financial goals.
For example, if you have high-interest debt to pay off, you could improve your financial situation by paying down that debt with money from the inheritance. If your emergency fund could use a boost, set aside a portion of the money to better protect yourself from unexpected life events.
If you’re debt-free and already have a comfortable emergency fund, there are other areas in your life you may need to catch up on, such as:
- Contributing to your retirement account
- Paying down your mortgage
- Saving for your children’s college education
- Giving to a charity or foundation you care about
And finally, it’s okay to treat yourself to a little bit of a splurge when you inherit money. Of course, it’s probably not a good idea to quit your job or purchase property you couldn’t comfortably afford otherwise. Ultimately, your lifestyle shouldn’t change too much when you receive an inheritance. Instead, your inheritance should complement and contribute to your overall financial goals.
Consult With A Professional
Warren Buffet said, “If you cannot control your emotions, you cannot control your money.” When you find yourself at a financial crossroads that involves emotions, it’s wise to consult with a professional. The objective advice from a knowledgeable wealth manager can help you curb temptation to overspend or spend unwisely, and ensure you’re not misusing your inherited funds. A professional can also help you evaluate your options in order to optimize the inheritance to build a better financial future.
Rather than a solution, we at Anderson Financial Strategies believe money is a tool to help you feel confident about your future. Our goal is to help you use your inheritance to increase financial security and execute your overall financial strategy to achieve sustainable long-term, real-life returns that meet your top financial goals and objectives.
If you want to partner with a wealth manager who has your best interest in mind, don’t hesitate to reach out. Please call us at 855-237-4545 to schedule a meeting to start the discussion.
About Shon
Shon Anderson is president and chief wealth strategist at Anderson Financial Strategies, LLC with over 15 years of experience. As a fiduciary, Shon’s mission is to provide his clients with quality financial expertise along with rapidly responsive service through an honest relationship. He specializes in providing family office-style services to help his clients organize and focus their financial life. Shon graduated from Wright State University with a bachelor’s degree in financial services and an MBA in finance. He is a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and holds the Chartered Financial Analyst (CFA®) designation. His insights have been quoted in leading financial news publications such as CNBC, Yahoo Finance, Fox Business, Consumer Reports, Forbes, Bankrate.com, Investment News, and Kiplinger. Shon serves as an adjunct professor teaching personal finance courses at Wright State University, leads CFP® exam review courses for Keir Educational Resources, and is president of the CFA Society Dayton. Shon and his wife, Jessica, reside in Sugarcreek Township, Ohio, and are blessed with triplet daughters, Elizabeth, Bridgette, and Alexandra, along with their son, Jacob, and dog, Jack. Over the years, Shon has been involved in several volunteer organizations including the Wright State chapter of Delta Tau Delta as an alumni adviser and was a Big Brother in the Big Brothers/Big Sisters program. To learn more about Shon, connect with him on LinkedIn.