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How to Manage an Inheritance

Creating a financial legacy for loved ones is the hope and dream of many parents.  Receiving an inheritance can lead someone to a more rewarding lifestyle or could create financial turmoil if not managed properly. More than half of the people that receive an inheritance spend it away within just a few short years. How can you improve the chances that you (or your beneficiaries) will act responsibly with the windfall of money that is about to exchange hands? We have a few tips on how to manage an inheritance.

Prepare Ahead of Time

If you know that you are likely to receive or leave an inheritance, then it would be wise to plan for that day ahead of time. Many parents will have their children form relationships with the professionals that have helped them with their wealth prior to their death.

It would be especially wise for anyone that will be receiving an inheritance to form a relationship with the tax preparer, estate planning attorney, and financial advisor ahead of time. This will allow everyone to lay out the plan and process ahead of time. It will also allow everyone to fully understand the hopes, dreams, fears, and concerns that may come up when the parents pass away.

Take Your Time

Please give yourself some time prior to making any decisions. Most individuals that receive an inheritance are dealing with the death of a loved one. Making decisions during an emotional time tends to lead us to “buyer’s remorse” down the line. 

People need to resist the urge to buy a new car, house or quit a job until they have had time to fully process the inheritance and death of a loved one. Most people do not inherit money very often, and we all tend to make mistakes the first time we do something. This is another reason to take your time after inheriting money. Give yourself time to grieve and bring closure to the situation before making any quick decision.

Strengthen Your Relationships

Spend time with your spouse, children, and other family members to set expectations on how this newfound money will be shared.

Finances are a leading cause of divorce, so do not let the inheritance drive your relationship apart. Spend some time with your parent’s financial advisor to discuss what your parents had hoped would be accomplished with this inheritance. The financial advisor can also help make sure that cost basis is updated on all of the accounts.

Go see your estate planning attorney to review your living trust, will, and power of attorney.  Check with your accountant to see what tax forms will need to be filed. Visit with your insurance agent to review your new situation.

Prioritize Your Objectives

Create a list of things you would like to accomplish with this inherited money.

Paying down debt, saving for retirement and college should all be at the top of the list. Keep in mind the interest rates that you are paying and the time frame for all of the above goals before making any decisions.

This is where spending time with a financial advisor can help prioritize your objectives. Receiving help from a financial advisor can create a lasting legacy with the money that an individual inherited.

Lastly, have a little fun with some of the money. Maybe take the kids or grandkids on a trip to see where their heritage started or take a trip somewhere that you remember visiting fondly of when you were a child.

Need more help on how to manage an inheritance?

Hopefully these tips will help you figure out how to manage an inheritance. But If you have any questions or are seeking holistic financial services, contact Chatterton & Associates. Our team of financial advisors can measure your risk level with your inheritance, and help point you in the right direction.

Check the background of this firm/advisor on FINRA’s BrokerCheck.