Navigating Inheritance

Receiving an inheritance is often an affecting experience—marked by a loved one’s passing, the money is a wonderful gift that also gets intertwined in the grieving process.

After a loved one’s passing, it can be difficult to sort through the legal and financial repercussions that come with an inheritance. Your inheritance is an important responsibility and a chance to use the money in a thoughtful, meaningful, and intentional way that promotes the life and legacy of those who came before you.

Using an inheritance wisely can be more difficult than stuffing it away in a savings account. Today, our team wanted to bring you a few things to keep in mind as you decide how to best use your inheritance. 

First and foremost, remember that your inheritance should be used in a way that represents your goals, dreams, and aspirations. We are offering some general advice but for specific advice on your unique situation, give us a call.

Know what you’ve inherited

This may sound basic, but the first step in deciding what to do with your inheritance is to know exactly what and how much you inherited. Inheritances can come in many forms like family jewelry, heirlooms, cash, property, investments, and more. Each of these things will require a different plan to decide what is best. 

If you inherited property, for example, you would be facing different choices than if you were inheriting the balance of an IRA or 401(k). Understanding what you have will help you and your financial planner work together to create some options for you. 

With property, you would need to decide what is best for you as the inheritor. Family politics and opinions can often get in the way of something as large as a house or estate, especially if you are the sole beneficiary. 

Before making any rash decisions, like moving in or selling, weigh your options. How much is left on the mortgage? Can you afford the property taxes? Is it in the same school district? Is it in a liveable condition or do you have to fix it up? Once you have all of the facts, you will be able to make a more informed and healthy choice. 

Many emotions are tied up with inheriting property, but it is important to know that there are a lot of ways to honor your late loved-ones memory. Keep this in mind as you go through the process. 

For non-spouse beneficiaries of inherited IRAs, it is important to know that the SECURE Act has eliminated the provision that allowed you to withdraw funds throughout your lifetime (stretch provision) and requires instead that you withdraw all funds in the account within 10 years. There are some exceptions to this rule like spouses and minor children. If you inherited an IRA, it is important to work with your financial advisor on a withdrawal plan that takes your tax responsibility into account. 

Sketch it into your financial plan

Once you know the basics of your inheritance, the next step is to work it into your financial plan. What you do with your inheritance may be different than what your aunt, best friend, or colleague would do and that is okay. 

Remember, your inheritance should be a testament to your future and help you find financial success. In general, there are three big picture avenues for your inheritance. Let’s take a closer look. 

Save up

You probably have a lot of different savings goals etched into your financial plan. That’s great! You can use your inheritance to help fund some of those larger savings ventures like maxing out your retirement accounts (401k, IRA, etc.), funding a 529 for your children’s (or grandchildren’s) education fund, or fund a once in a lifetime trip you’ve had your eye on for years. 

It can also be a good idea to use some of the money to replenish your emergency fund. Especially in the aftermath of COVID-19, you may have had to dip into those funds to cover some expenses. Now would be a good time to rebuild that safety net. 

If you inherited any assets like a mutual fund, it is wise to look at those assets as part of your overall investment plan. You may decide to invest those funds to further long-term savings goals. 

Spend some

You received an inheritance, who says you can’t spend any of it? There are some smart ways to spend some of the money in your inheritance like on any debt you may have. Take some time to look at your debt-repayment plan and ask yourself a few questions.

  • Do you have any high-interest credit card debt? 
  • Are you close to making your last student loan payment? 
  • Do you have enough to close the tab on your mortgage? 

These are some really great avenues for helping you use your inheritance to further your financial goals.

Donate a portion

Charitable giving is an important part of many people’s financial lives and it is a great way to spend some of your inheritance. Find a charity, cause, or organization that means something to you and your family. This is a great way to honor the legacy of your departed loved one while still establishing a healthy pattern of giving back.

Give yourself time to grieve

An inheritance, while a wonderful gift can also be a difficult time for many people. Losing a loved one is never easy and it is important that you give yourself the time and space to grieve and mourn in your own way. Otherwise, some negative emotions may make their way into your financial choices. 

While emotions are a central part of your dreams, goals, and priorities (all foundational to your financial plan) it is important that they are harnessed and controlled in order for your plan to work best.

Let yourself feel your emotions, whatever they may be. Once you have done that, you may be able to approach your inheritance from a more thoughtful perspective. 

Ask For Help

While it is important not to rush through the process, staying vigilant will keep things on track. Working with a financial planner (in concert with your attorney) is a great step as they will be able to help you make a plan for your inheritance that optimizes and enhances your financial goals.

We’re here to help and support your financial plan in order to further your goals and dreams. We would like to help you see the potential in each aspect of your financial circumstances and how each piece can work together to produce an even better result. Schedule a time to talk with us today. 

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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