Financial Planning After Receiving Inheritance

Written By: Nick Ziarek, CFP®, CFA

Receiving an inheritance can be a significant event bringing both opportunities and complexities. Careful planning is essential to make the most of it. Below are a few financial planning steps to consider.

Take Your Time: Don’t rush decisions. Take time to grieve and process recent events, then reflect and consider your options. Financial decisions made in haste may not be the most beneficial in the long run.

Understand the Assets: Gain a clear understanding of the assts you’ve inherited. They may include real estate, stocks, bonds, IRAs, annuities, cash or personal property. Knowing what rules and tax implications there may be with the various assets and account structures will be crucial for making informed decisions.

Review and Update Your Own Personal Financial Plan: Evaluate your existing financial plan in light of the inheritance. Consider not only your own financial goals but also the intentions and values of the deceased. Adjust your plan as needed to align with your new circumstances.

Assess Debt and Liabilities: Before making any significant financial decisions, assess any outstanding debts or liabilities – both those of the deceased and your own.

Tax Implications: Be aware of the tax implications of your inheritance. In some cases, inheritance may be subject to estate taxes, income taxes, required minimum annual distributions, mandatory pay out periods, or lump sum benefits. Consult with your financial advisor or tax professional to understand your obligations and any available deductions.

Emergency Fund: Ensure that you have an adequate emergency fund in place. This fund can be used to cover unexpected expenses and provide a financial safety net. Address short-term financial needs before considering long-term investments.

Long-term Financial Goals: Consider how the inheritance fits into your long-term financial goals. This could include saving for education, retirement, other major life events, or your own intentions of leaving an estate for the next generation.

Invest Wisely: Your inheritance may include long-held investments that the deceased held in high regard. Carefully review the inherited holdings and consider what is the best strategy for you, considering your own ability and willingness to take risk and remembering the importance of being diversified when investing.

Estate Planning: If you haven’t done so already, consider updating or creating your own estate plan. This may involve updating beneficiaries on accounts, creating a will, or establishing trusts.

Charitable Giving: If you’re charitably inclined, consider strategies that may achieve your intent while increasing tax efficiency. Those over 70½ are eligible to make Qualified Charitable Distributions (QCD) from inherited IRAs.

Review Insurance Coverage: Assess your insurance coverage, including life insurance and adjust as necessary. This is especially important if your financial situation has improved and changed your need for life insurance.

Remember, everyone’s financial situation is unique and it’s in your best interest to seek personalized advice from financial professionals based on your specific circumstances. Your Shakespeare advisor listens to your story and builds a relationship with you. This creates a shared commitment to securing your financial well-being now and for generations to come. Give our team a call to help guide you through this process.