Financial Planning

Financial Planning for Inheritance

Five smart steps for managing a one-time windfall

An inheritance can be a financial game-changer–if you play your cards right. Follow these financial planning steps to take full advantage of your windfall.

Step One: Take a time out

A sudden influx of cash—whether $20,000 or $2 million—can be overwhelming. So take the time to get accustomed to your new account balance before making any sudden moves. And don’t quit your day job–at least not right away. Some experts recommend waiting a year before making any big life changes or major purchases.

While you wait it out, you could stow your money in a low-risk investment. In the meantime, discuss your goals with a financial advisor. Together, you can draw up a thoughtful plan without rushing into any sudden financial decisions that might backfire.

Step Two: Deal with debt

Fancy cars and lavish vacations are nice, but smart spending now will reward you for years to come. Many experts suggest starting by reducing what you already owe. Pay special attention to high-interest debt, such as credit cards or college loans. Paying off a debt that carries an interest rate of 13 percent is like getting a 13 percent return on your money.

Step Three: Consider your investments

Some inheritances include investment assets such as retirement funds or stock portfolios. But if these investments don’t align with your own savings investment strategies, you may need to make some adjustments. “When you inherit stocks, they can sometimes feel like an heirloom, not an asset,” says Ann Perry, author of The Wise Inheritor:  A Guide to Managing, Investing and Enjoying Your Inheritance. “But you have to make sure you have the best investments for you, personally.” If it’s emotionally difficult to divest yourself of legacy stocks, Perry recommends tackling the process gradually over time instead of all at once.

Step Four: Plan for the future

Once you have a handle on your inheritance, turn your attention to your own estate plan, which will help ensure that your wealth is distributed according to your wishes after you die. “Now you have something of value that you didn’t have before,” Perry says. If you don’t already have a will set up, do so right away. If you’ve already begun the estate planning process, make sure the relevant documents are updated to reflect your new financial status.

Step Five: Splurge–strategically

Of course, you can–and should–enjoy your newfound wealth. To make sure that your spending doesn’t get out of control, set a certain amount aside as a “fun fund.” This is money you can spend, guilt-free, on whatever you choose. By incorporating occasional splurges into your financial planning, you’ll be less likely to make impulse purchases you’ll later regret.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.


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