Managing a Windfall: How to Be a Good Steward of Your Inheritance

Receiving an inheritance comes with a mix of emotions. You may be grieving the loss of a loved one while feeling overwhelmed with the responsibility of managing a recent windfall. No matter the size of your inheritance, there are some things you can do right away to be a responsible and conscientious steward of wealth. From saving, paying down debt, and investing, here are a few considerations to make regarding your recent inheritance.

Tip #1: Review Your Savings Goals

A simple strategy for those who may feel overwhelmed by an inheritance starts by reviewing your savings goals. This could include retirement savings, emergency savings, or a savings goal for a new car or house. It may be beneficial to allocate a majority or a portion of your inheritance towards your savings goals. While it may not feel especially exciting to tuck this money away, it can help create a nice cushion and make your big goals much more attainable.

Tip #2: Focus on Debt

Debt can grow exponentially while diminishing your wealth. In other words, if you have debt, it may be beneficial to focus on paying it down. From mortgages, student loans, and car loans to higher interest debts like personal loans and credit card debt, focus on those with the highest interest first. For low-interest debts like mortgage and student loans, consider making principal-only payments if possible. These can help significantly reduce your interest payments in the long run by lowering the amount that interest is based on.

Tip #3: Treat Yourself (Sparingly)

One of the first things everyone wants to do after coming into a financial windfall is buy something they've always wanted. It is important to indulge yourself with a little something to enjoy the money. Just be sure to budget for it appropriately, and then don't exceed that budgeted amount. Consider something that gives value while doubling as an asset for your future, such as artwork, investment properties, or jewelry - anything likely to hold or appreciate is a good choice. This can allow you to enjoy it today while planning for tomorrow.

Tip #4: Build Your Portfolio

If you don’t have one already, now may be an opportune time to begin building out your portfolio. If you’re able to, work with a financial advisor who can offer personalized investment strategies built to address your short-term concerns and long-term goals. Investing a portion of your inheritance means the potential is there to maintain and grow its purchasing power over time, although returns are never guaranteed.

Tip #5: Understand Potential Tax Obligations

Federal inheritance taxes in the US are limited to those who receive an amount that exceeds the applicable threshold for the year. For 2021, the amount is 11.7 million for an individual. Some states have an inheritance tax as well.

Heirs may also be required to pay federal and state income taxes, depending on when the estate income is generated. There are also capital gains taxes that could apply to your situation.

Your advisor can let you know what obligations and exemptions you may be facing.

An inheritance is an opportunity for beneficiaries like you to make impactful financial decisions. As you determine how best to manage your recent windfall, work with a certified financial planner to build the right course of action.

About Eric

Erickson Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management. He is a Certified Financial Planner®️ professional and a Chartered Retirement Planning Counselor®️. Eric brings over 20 years of experience working with high net-worth individuals and families, helping them achieve their goals of protecting and growing their wealth for retirement and for generations to come. Because Eric is a CFP®️ professional, he adheres to high ethical standards and engages in at least 30 hours of approved continuing education in the financial industry each year.

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