The Boston College Center on Wealth and Philanthropy projects that the parents of baby boomers, and boomers themselves, will leave wealth and assets worth at least $41 trillion — and possibly as high as $136 trillion — to family and philanthropy over the next 47 years1. That means that many people will find themselves on the receiving end of an inheritance.
No matter how the inheritance comes about, the initial excitement and thankfulness might also be coupled with feeling overwhelmed by the responsibility. One way to handle that responsibility is to be discerning in the way you use it, out of respect and gratitude for the person(s) who made the gift possible.
For most people, the answer is “no.” Here are five tips to help you manage your newfound wealth wisely:
Grieve and heal before you make any decisions. Although it is possible to receive an inheritance from a person who is living, an inheritance almost always comes about because of the death of a loved one. This can be a very emotional time.
One of the best things that you can do is “park the cash.” Deposit the money into a savings account or another safe investment for a length of time between one month and one year to allow yourself time to heal before you make any major financial decisions. However, if the inheritance is not cash, you should seek an assessment from a financial expert or tax professional as to any time sensitive decisions that must be made. When an inheritance comes in the form of real estate or an investment portfolio for example, they often need to be reviewed sooner than later because delays may result in penalties.
Invest in your future. Before deciding what to do with your inheritance, you should take a look at your short, mid, and long-term financial goals. Take the amount of money that you have inherited and figure it into your total financial picture; then, try to allocate part of it to each of your goals.
In the short-term, you might want to spend a portion of the money on something that will improve your quality of life now, such as a new car or a home. Keep in mind your medium and long-term goals — such as helping your children pay for college and funding your retirement. Using part of the money to boost your retirement savings is one of the best ways to guarantee that your inheritance has a positive, long-term effect on your life.
Consult a financial expert such as the CERTIFIED FINANCIAL PLANNER™ professionals at MMBB Financial Services. No matter the amount of your inheritance, it is a smart idea to contact a financial planner for advice on how to understand and manage your inheritance.
When you receive stocks, bonds, life insurance, retirement accounts and property you might be faced with considerable federal and/or state inheritance taxes.
Working with a financial expert or tax professional will enable you to arrange for the sale of any assets and deal with the tax implications.
Look at your debt strategically and pay off only “bad” or high-interest rate debt, such as credit cards, personal loans and car loans. You may not want to pay off your mortgage, since you might realize tax benefits on the interest payments.
Consider funding an emergency savings account with three to six months’ worth of living expenses so that you will not have to rely on credit in the future.
Set aside a small amount from your inheritance — perhaps 5% to 10 % — to spend on something special. Perhaps a new car or a family trip. Just remember what your inheritance is worth and avoid the tendency to overspend.
A sizable inheritance can represent a life-changing opportunity when it is prudently managed. And for many of us, it is a once-in-a-lifetime gift that we do not want to squander.
The loss of a loved one often makes us think about our own mortality and the legacy that we would like to leave behind. There are many ways to accomplish this, such as remembering the person that left you the money by contributing to a charity or setting up a trust or foundation.
It is also the perfect time to think about your own estate and the plans you need to make in order to leave an inheritance for your loved ones. As you consider how best to use your inheritance, let it serve as a reminder to be sure your will is up to date and that you have designated beneficiaries for any accounts you have. As a benefit of membership, MMBB has CERTIFIED FINANCIAL PLANNER™ professionals available to answer your questions and assist you in your financial planning and estate planning needs. For more information, please contact us at [email protected] or 800-986-6222.
1http://money.cnn.com/sales/major_moments/nestegg/inheritance.html
Portions of this article appeared in the May/June 2018 issue of Church Executive magazine.
Back to Financial Resource CenterThank you for joining the MMBB mailing list. You will begin to receive information soon.
Translations of any materials into languages other than English are intended solely as a convenience to the non-English-reading public. We have attempted to provide an accurate translation of the original material in English, but due to the nuances in translating to a foreign language, slight differences may exist.
Las traducciones de cualquier material a idiomas que no sean el inglés son para la conveniencia de aquellos que no leen inglés. Hemos intentado proporcionar una traducción precisa del material original en inglés, pero debido a las diferencias de la traducción a un idioma extranjero, pueden existir ligeras diferencias.
You will be linking to another website not owned or operated by MMBB. MMBB is not responsible for the availability or content of this website and does not represent either the linked website or you, should you enter into a transaction. The inclusion of any hyperlink does not imply any endorsement, investigation, verification or monitoring by MMBB of any information in any hyperlinked site. We encourage you to review their privacy and security policies which may differ from MMBB.
If you “Proceed”, the link will open in a new window.
Back to Top
