How to Be a Good Steward of Your Inheritance
When you receive an inheritance, you're likely to experience a range of emotions. The personal loss can be deep and painful. It's a strange time to receive a sudden monetary gain.
Your first instinct may be to act - to do something, anything financially. For some, this is an urge to rush out and buy that nice car you’ve had your eye on for years. Others can feel frozen by the burden of responsiblity as the new steward of a portion (or all) of a loved ones' life savings.
No matter how you feel, before you make any decisions, you might want to slow down.
It's okay to let things sit for awhile. It's not a good long-term strategy, but taking several days, several weeks, several months, or even a year to gather your thoughts can sometimes be the best move of all.
Then, once you're in the right state of mind, consider what good you can do with the money or assets you’ve received.
Clear Yourself of Debt . . . or Someone Else
Depending on the size of your inheritance, there may be no excuse for continuing to carry large amounts of unsecured debt while paying tons of interest. If you have credit card balances and car notes, you may want to start by looking at how best to approach paying it down.
A good idea regardless is to go through your options with a professional and discuss how best to handle using your inheritance to tackle debt.
Take Care of Yourself and Your Family
Consider your immediate needs, and think about the future, especially if you have children. If you have a set percentage of pay to spend and save, consider incorporating the inheritance into your budget in the same measure.
If you have inherited property or other assets, talk to a trusted professional about how best hold the asset, or how to convert the asset into cash, or even if you should at all.
This might be a good time to seek a more appropriate long-term living situation. Renters tend to pay extra for the flexibility to break or end a lease, especially with unexpected life-changes. Owners tend to do better over time, but don’t rush into home ownership too soon. Don’t buy until you’re sure you’ll live in an area for five years, or longer.
You are likely (hopefully!) already thinking of savings, Roth IRAs and other investment strategies upon receiving an inheritance. Investing may allow you to spend from the inheritance, while also maintaining your ability to pass some (or all) on to the next generation. You can also invest in other ways, like purchasing a new home. Of course, you'll want to balance any investments with debt reduction as well.
Boost a Worthy Charity
If you are knowledgeable about finances, you know of the tax benefits of charitable donations. Giving to a charity may help reduce some taxes owed thanks to your potentially new capital gains. You will also be contributing to your community or an organization in ways you could not before. There are even ways to fund a charitable organization for years to come. As a nice touch, consider establishing a gift in the name of the loved one that passed on.
You don’t have to limit the gift-giving to a charity. You can spread the wealth among family and friends. Gifts can have tax implications like charitable donations, so it’s something you will want to talk about with a financial planner.
Take Great Care
Some spending is okay, especially if your finances are already in good shape. However, you may want to resist the urge to splurge.
Many people joke about spending their paychecks before they receive them. Don't allow that to be the case for you and your inheritance, especially if it is something you have been anticipating.
You may also see relatives and friends approaching you with “fantastic” notions of business opportunities that can’t miss, or stories of those who are in dire need. Think hard and do your homework before rushing into anything.
Talk Things Over
You shouldn’t make these big decisions alone if you hope to pay forward the legacy you received.
Of course, you can talk things over with family members, though finances can be a difficult topic. You can speak with the executor of the will or trust if that’s how you received the inheritance. The executor is often someone your loved one trusted enough to handle their affairs posthumously. Hopefully, that will make them a good source for advice. You can address these issues with an attorney who is well versed in finances, taxes and investments.
It may be a good time to establish a relationship with a financial advisor if you don’t already have one. It may not have made sense to have a financial advisor previously, but now that you have a new source of funds, talking to an experienced professional will be a good idea.