If you just received an inheritance, you’re likely experiencing a range of emotions—grief, shock, gratitude, and confusion—just to name a few! And the question running through your head is, “What do I do now?” Your first step is to take a moment. Give yourself some time—time to grieve the loss of the person who gave you the inheritance and let your emotions settle, but also to make a plan. An inheritance can improve your financial situation and bring peace of mind, and it can also remind you of your loved one’s legacy and how much they cared for you. 

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Unfortunately, sometimes people who receive an inheritance don’t know how to properly manage it. In worst-case scenarios, inheritors blow their inheritance in a matter of years or even months, sometimes falling into more debt as a result of overspending. 

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To use these new funds wisely and avoid risking the legacy your loved one left for you, it’s important to approach your inheritance thoughtfully and strategically, and to allow yourself time to work through this transition and explore the options available to you. Here are some principles to guide you through the process. 

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Process The Loss Of Your Loved One

Before making any decisions about the money, you need to work through 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. 

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If your loved one spent their life building and protecting their wealth, they probably hoped you’ll 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. 

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Understand The Type Of Inheritance You’ve Received

It can also be beneficial to consult a professional so you understand what type of inheritance you’ve received. Common types of inheritances include:

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• A trust account or cash
• A retirement account such as an IRA or 401(k)
• A house or other property
• Investments in individual companies 

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Knowing the category of inheritance you’ve received impacts how you access the inheritance  and what your options are to move forward. 

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For example, if you inherit a home but don’t want to live in it, you may need to work with a professional to sell the property. If you inherited a portfolio of stocks, you may need to work with a financial advisor to sell the investments to create a portfolio that is more suitable for your existing needs. 

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Likewise, inheriting a retirement account comes with its own set of obstacles. You will need to work with the plan provider to retitle the account. You will also need to determine if the existing investment mix is suitable for you and what your new investment options are. Regardless of the inheritance you receive, it can help to contact a financial professional who understands the intricacies of inheritance situations. 

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Evaluate 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. 

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For example, if you have high-interest debt to pay off, you could improve your financial situation by paying down that debt with money from the inheritance. If your emergency fund could use a boost, set aside a portion of the money to better protect yourself from unexpected life events.

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If you’re debt-free and already have a comfortable emergency fund, there are other areas in your life you may need to catch up on, such as:

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• 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

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And finally, it’s okay to treat yourself to a little bit of a splurge when you inherit money. Of course, it’s probably not a good idea to quit your job or purchase property you couldn’t comfortably afford otherwise. Ultimately, your lifestyle shouldn’t change too much when you receive an inheritance. Instead, your inheritance should complement and contribute to your overall financial goals.

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Consult With A Professional

As with any major financial decision, it’s wise to consult a professional; even more so when the decision is potentially emotional. The objective advice from a knowledgeable financial advisor can help curb temptation and ensure you’re not misusing your inherited funds. A professional can also help you look at all options from all angles, optimizing the inheritance to build a better financial future for the long run.

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Louis Green

As a financial advisor, I believe money is a tool, not a solution, to help my clients live confidently with their future in mind. An inheritance can help increase financial security or reach other financial goals, and my priority is for my clients to never outlive their finances. If you want to partner with a financial advisor who’s looking out for your best interest, reach out to Louis Green.