What Should You Do With An Inheritance?

It is the worst blessing one can receive, an inheritance. First off all, if you are reading this searching for answers because you have received one, we are sorry for your loss. 

Second, congratulations on seeking answers and ensuring you are doing the right thing with this gift you have received.

We believe that doing your due diligence and making smart decisions with this money is one of the best ways to honor the person that wanted you to have it.

So now, what should do when you receive an inheritance? 

What are things I must do when I receive the money?

Assuming that all obligations of the deceased's estate are satisfied, and the money you have is free and clear, there are only two things you have to do right away:

1. Ensure you have enough set aside for any taxes that are coming

2. Nothing else.

In most scenarios the tax obligations will be minimal if the estate was settled promptly, but you need to make sure that this money is set aside just in case. It is always helpful to consult with a tax and financial professional to ensure that you don't have any hidden tax consequences.

Other than that there is no rush. Losses can be extremely painful, and it is okay to grieve. The biggest thing you want to do is avoid making poor decisions while you are still catching your breath. Don't rush to any big unplanned purchases. Don't try to make yourself feel better by buying stuff. It is okay to park the money in the bank (higher yielding money market fund, preferably) for six months or a year. That is perfectly fine. Don't let anyone make you feel like you must put the money to work today, with one exception.

Put out any fires as soon as you can

If there are any immediate financial needs, you should use the money for that. If you are running a negative budget, or you have high interest debt it would make sense to fix those issues. If you have credit card balances, high interest car loans, etc. then paying them off will provide relief and makes sense from a financial standpoint. Relieving this pressure from your monthly budget will allow you the space to breathe a bit more easily and focus on what is important in the nearer term.

I feel like I am ready to put the money to work, what now?

Short answer - follow your Financial Plan. Treat this money like it is any other money that you earned on the job. What is the next thing you have on your list. It may be that it makes sense to pay off a bunch of debt like your cars, or if it is enough, maybe even your house. Might be that you are behind on retirement investing and need to do some catch up by funding Roth IRAs. You certainly should have a solid emergency fund of three to six months of income and this is a good opportunity to fund that.

There are a world of possibilities, but you should make sure that any path that you choose drives you towards achieving your plan goals.

Create a memory

Assuming that you have taken care of your immediate needs, have an emergency fund, paid off any credit cards and high interest loans. Then think about doing something to create a memory. Maybe it is a trip you have been dreaming about, or going somewhere that is special to you and the person that left you the money. If it was your parent or grandparent, was there a favorite trip you would take together growing up, that now you can share with your kids or grandkids?

If it is larger sum of money, and you are in the right financial place to take advantage of it, maybe it is a second or vacation property. If you grew up going to the lake with your family, maybe it is a lake house for you and your family to enjoy.

Memories are one the one thing that will stay with everyone forever, and perhaps the best legacy we can leave. So if it makes sense for you and where you are at in your financial plan, honor the person by creating a legacy of memories for you and future generations. Take lots of pictures, that way every time you look at them you can think about the gift you received and be able to remember them.

Do you have a Financial Plan to help you make smart decisions with your inheritance?

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Snowcap Financial, unless otherwise specifically cited.   Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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