When someone you love passes away, you might receive a gift in the form of an inheritance. Typically a large, unexpected amount of money, an inheritance is a chance to offer more financial stability to your life.
But, like any large sum of money that comes out of the blue, an inheritance can also bring stress. If not managed properly, your finances might not get any better, and they could even get worse if you end up taking on more debt than you can handle.
That’s why it’s important to take your time and make wise choices when you get part or all of the windfall your loved one left behind—especially considering the added emotional difficulty of losing someone close to you. Here are some things to consider as you make decisions about what to do with your inheritance.
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 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
Get the Right Support
When facing such important financial choices like deciding how to manage inherited funds, seeking guidance from a professional can help smooth out the process. A reliable financial advisor can offer seasoned and objective recommendations, which guards against the temptation to mishandle your money. They can also assist in optimizing your inheritance for a more stable financial future.
Here at Premier Planning Group, our goal is to provide our clients with a clear and confident outlook on their financial choices. Our mission revolves around overcoming complex financial obstacles through a personalized approach aligned with your circumstances and financial objectives. If you’re ready to collaborate with a financial advisor who prioritizes your best interests, don’t hesitate to get in touch with us today by calling our office at (443) 837-2520 or emailing my executive assistant, Talia Grover, at taliagrover@premierplanninggroup.com to set up a complimentary consultation.
About Brion
Brion Harris is the CEO, founder, and managing partner of Premier Planning Group, an independent financial firm specializing in working with pre-retirees and retirees, helping them create customized wealth preservation and retirement distribution strategies. With over 20 years of experience, Brion has developed deep knowledge and skill in helping his clients simplify their finances and find confidence in their financial future. Brion and the Premier Planning team are known for their unparalleled client service and their dedication building long-lasting relationships with their clients. As a result, Brion has been the recipient of the #1 Advisor Leadership Award* at Summit Brokerage Services for eight years running and has a reputation as one of the top retirement advisors in the business.
Brion is a proud 20-year resident of the Annapolis community, where he resides with his wife, Elizabeth, their three children, Addison, Jay, and Scarlett, and their two dogs, Pepper and Coco. When he’s not working, you can find him boating, skiing, traveling, and enjoying good food and music with his family. If you want to learn more about Brion, connect with him on LinkedIn.
*The #1 Advisor and Leadership Award is based on production data while at Summit Brokerage Services, Inc. Brion Harris received the award in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. This award is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.