You’ve just received a sizable inheritance. Now what?
Whether or not you were expecting to inherit a large sum of money, it can still be a bit of a jarring experience. In fact, many new clients who reach out to me get in touch because they’ve received an inheritance, and aren’t really sure what to do next. Here are five steps to make a plan for your windfall.
#1: Hit “Pause”
The truth is that people rarely inherit from a long lost relative or family friend they’ve never met. There’s almost always emotions tied into losing a parent or loved one who left you a sum of money in their will. This can influence how you use your inheritance. You may be inspired to make financially wise decisions with the money to honor the memory of the person you’ve lost. You may also be sitting on a pile of cash because using it feels uncomfortable, or reminds you that you’ve lost someone you loved.
Whatever you’re feeling right now is completely normal, but that doesn’t mean you should let how you’re feeling while you’re grieving influence what could be a lifelong financial decision. My #1 recommendation to people who have just received an inheritance is to hit pause. Do absolutely nothing for at least three months until you’ve had time to regroup and speak with the financial and legal professionals in your life.
#2: Contact Your Attorney
There shouldn’t be any legal implications or requirements that come with your inheritance – but every case is unique. Even if your loved one set up their estate plan perfectly, it pays to have a trusted attorney guide you through the process of receiving your inheritance. You want to make sure you’ve dotted your i’s and crossed your t’s before putting your inheritance to use.
#3: Reach Out to a CPA
Although receiving an inheritance shouldn’t trigger any taxes for you immediately, it could have a long-term impact on your finances – which could impact your tax bracket. Contacting a CPA to learn more about whether or not your inheritance bumps you to a new tax bracket, and planning ahead to mitigate for those future taxes, is key.
#4: Take Time to Think About Your Goals
An inheritance often gets people thinking about their own legacy and the type of impact they want to leave. So, before making any knee-jerk decisions about the money you’ve received, take some time to think about your goals. Don’t be afraid to dream big. Sit down with your spouse or partner (if applicable) and talk about the future. Ask yourself these questions:
- What is my Wealthwhile?
- What do I want my impact to be?
- How can I support my family, community, and causes I am passionate about?
- What big lifestyle goals do I have, that I haven’t pursued because finances were a barrier?
You might find that you want to start your own business, or spend a year volunteering, but haven’t because of the student-loan mountain you’re paying down. Maybe you envision moving away from the city, buying property, and raising your kids on a small hobby farm. Whatever goals you have for your life and the kind of impact you want to make, now is a great time to start thinking about them. This inheritance, regardless of how big it is, can play a part in moving you toward the life you want to live.
#5: Work With Your Advisor
While you’re thinking about how you’d like to leverage your inheritance, you might want to reach out to a fee-only financial planner to help. Personally, at Deerfield, I know that we focus on helping our clients make their wealth worthwhile no matter what phase of life they’re in. These conversations often go beyond the dollars and cents of your personal financial plan, because we believe we can’t help you build a strategy for your finances if we don’t have a deeper understanding of your unique goals and dreams.
Then, once we’re on the same page about what type of life and legacy you’re building, we’re able to help you create a plan for everything from cash flow to debt repayment, to investing to help put you on the path to reach those goals. This inheritance may have come with the loss of someone meaningful to you, and that can be tough to process. However, it also offers you an opportunity to make a positive impact on the world around you – just like your beneficiary did.
Ready to make a plan for your inheritance? Reach out. I’d love to help you walk through a goals-based financial plan that’s unique to you.
(Updated August 5, 2020)