What would you do if you received an inheritance of money? Most people don’t think about this unless they already know it’s coming in the near future. Even then, it can be overwhelming to face all the options you may have and decisions that need to be made as to what to do with the money. There are also a lot of emotions involved with receiving an inheritance; it can be a bittersweet experience.
While you may have good intentions of using your inheritance to honor your lost loved one, it’s easy to overlook certain things, especially when you are grieving. Working with a reliable financial expert who can guide you through the necessary steps and help you avoid potential pitfalls is a wise first step. Here are some things to consider if you have received an inheritance, or suspect you will soon.
Take a Moment
Before making any decisions about the money, you need to process the loss of your loved one. Failing to deal with your grief can result in emotional spending that compromises the money you’ve just received. If you give yourself some time, you may become more sensitive to your loved one’s wishes or have the chance to clear your head of complex emotions.
If your loved one spent their life building and protecting their wealth, they probably hoped you’d do the same. Letting your inheritance sit for a minute can help you overcome the initial temptation to splurge on something like a fancy vacation or an expensive new home. If it’s important to you to honor their legacy, don’t forget to take care of your own emotions to protect the wealth they’ve gifted to you.
Understand the Type of Inheritance You’ve Received
Common types of inheritances include:
- A trust account or cash
- A retirement account such as an IRA or 401(k)
- A house or other property
Knowing and understanding the types of inheritance you’ve received impacts how you access the funds, any taxes associated with it, and what your options are moving forward.
For example, if you inherit a home but don’t want to live in it, you may need to learn more about potential capital gains taxes before deciding to sell the property. If you find that a capital gains tax would be too costly, you might explore another option, such as renting out the house or living in it temporarily as you assess your situation.
Likewise, inheriting a retirement account comes with its own set of considerations, particularly if you inherit the retirement account from a non-spouse. Regardless of the inheritance you receive, it’s best to contact a tax-planning or financial professional who understands the intricacies of inheritance situations.
Take Stock of Your Financial Situation
Once you understand the type of inheritance you’ve received, you’re better equipped to align your plans for the inheritance with your other financial goals, such as:
- Contributing to your retirement account
- Paying down your mortgage
- Saving for your children’s college education
- Giving to a charity or foundation you care about
- Buying a vacation home or taking your family on vacation
Don’t Go It Alone
When you’ve inherited money, you may be feeling a range of emotions: sadness and grief, but also excitement or uncertainty. That’s why consulting with a professional when facing a major financial decision, such as what to do with inherited money, can be a wise decision. They can provide experienced and objective advice so you aren’t tempted to misuse the money. They can also help you optimize your inheritance for a better financial future.
At Black Walnut Wealth Management, we want our clients to have clarity and confidence in their financial future. Our goal is proactive wealth management. We accomplish this by coordinating every aspect of your financial life to help you avoid financial gaps or missteps that may leave you vulnerable. If you’re ready to partner with a financial advisor who has your best interests in mind, schedule a 15-minute introductory meeting by calling us at (231) 421-7711 or using our online calendar.
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