You Just Inherited Money; Now What?

You Just Inherited Money; Now What?

November 16, 2021
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In the next three to four decades, baby boomers will transfer $30 trillion in assets to their heirs. So chances are good that you may inherit money at some point in your lifetime.

But if you are fortunate enough to receive an inheritance, first give yourself time to grieve the loss of a loved one.

It is important to know that a lump sum will present opportunities – but also some challenges. Here are some of the ways people mishandle a windfall and recommendations on how to best prepare yourself for an inheritance.

1. Avoid making emotional decisions

After you receive an inheritance, the best thing to do is take a step back. If you’re dealing with the death of a loved one, focus on processing your emotions first. If you don’t give yourself time to grieve, you may make emotional decisions with your finances. Put the money in a savings account or other safe investment for 6 months to a year. Let the emotions settle.

2. Be strategic with debt

People often think an inheritance will solve their debt problems. Under a mountain of debt with steep interest rates and a barely manageable minimum payment, it seems reasonable to assume that a large lump sum would save the day.

However, debt is often a symptom of an underlying problem. Most consumer debt is incurred when spending exceeds income. Spending more than you make is not simply solved by making more money. We have seen people of all levels of financial means outspend their earnings. Unfortunately, this problem only gets more complex when the numbers are larger.

While there’s no one way to use an inheritance, one place to start is with any high-interest or bad debt you may be carrying. Paying down credit cards with high interest rates or student loans with higher interest rates is a good first step.

People who spend too much usually know it. If you do, begin working on your relationship with money now instead of waiting for an inheritance to save the day. Your attitude and decisions regarding money will impact you more than the numbers in your bank account.

3. Prioritize your goals

If you know an inheritance is coming soon, start making a thoughtful plan. You may want to pay off your mortgage or other debts or use this newfound money to give more to charitable organizations and have an impact in your community. Having a plan, even just to save those funds, can prevent impulsive decisions that you later regret.

While you may have inherited enough to achieve multiple things, in many cases you’ll have to think about both your short- and long-term goals and find a balance between the two.

4. Ask For Help

A financial professional can provide advice and coaching about how to manage your inheritance to ensure it has a lasting impact. An advisor will spend time with you to learn about your hopes and dreams before creating a financial plan to help you get there. 

With a sound plan, a person could retire earlier than expected. There may also be some tax-planning techniques or your own estate tax considerations to consider. You may also benefit by a plan to protect your assets, such as determining the correct amount needed for an insurance policy to protect against excess liability or putting a trust in place.

5. Keep Your Mouth Shut

Don’t advertise that you have this windfall coming.  You probably do not want extended family or “friends” coming out of nowhere trying to make claims on your inheritance or trying to guilt you into giving them money. 

6. Don't Spend What You Don't Have

Don’t spend the money before you get it.  It’s great to have goals for those funds, but make sure nothing has been implemented before the funds are received. Wait until funds are in your possession before putting your plan in motion.
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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite and Gowdy Financial Group, LLC., are not directly affiliated with any broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Gowdy Financial Group, LLC., is a Fee-Only, Financial Advisory / Financial Planning Coach firm dedicated to helping women, from all backgrounds and income levels, get out of debt, save toward your goals and enjoy the freedom that comes with being in control of your money. We don't sell products; we provide solutions. "Your Goals. Our Solutions." Serving Clients Nationwide.

Gowdy Financial Group, LLC., acts in the capacity of a Financial Intermediary providing and arranging commercial mortgage loans via privately and / or publicly - held funding sources.

We will at all times put our client’s interest above our own. We will maintain proficiency in our work through continuing education. When fee-based services are involved, We will charge a fair and reasonable fee based on the amount of time and skill required. We will abide by both the spirit and the letter of the laws and regulations applicable to financial planning services. We will give our clients the same service we would give ourselves in the same circumstances.