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Nothing is more difficult than losing a loved one. The grieving process is full of sadness and tears. Learning of an inheritance from that loved one can be both a blessing and a curse. While no one wants to rejoice in losing someone, finding out that you are going to be receiving money can be very exciting. Many people react quickly and ineffectively when they learn about a sudden windfall.
How to Maximize an Inheritance
Following a few important steps may ensure your inheritance lasts for years to come.
Stop and think.
An immediate reaction to sudden money could be to go on a shopping spree. Maybe you’d pay off your mortgage or buy a new, larger house. Those rash decisions could harm your financial future.
A better option is to take the money you have received and put it into a savings or money market account. Let the money sit in the account while you take the time to grieve properly. Also allow yourself the time to consider all of your options. Take the time to determine the best way to honor the life of your loved one.
Consult a professional.
Seek out the advice of an attorney. If your inheritance is contingent upon certain actions, you will need to find out what the law states. Are you requested to put half into trust for your child’s college education? Have you been instructed to never sell a family heirloom? These requests made in someone’s will may or may not be in your best interest and you may have options.
An attorney also ensures that all of the proper steps are taken should anyone decide to contest the validity of the will.
Also, set up an appointment with a financial adviser. Discuss the best ways to invest the money. Decide how to address your current debts or financial obligations. Ensure that any decisions you make are well educated and made without the emotional connection to your grief.
A financial adviser will also be able to assist you with the arduous task of paying taxes on the inheritance. Each type of investment will have a different tax requirement. Some may be tax free while others are taxed up to 30% or more. The financial adviser will make sure you are properly prepared for tax obligations.
Protect your financial future.
Making wise choices in protecting the future of you and your family is truly the best way to honor the life of your loved one. But what are the best ways to do that?
- Establish an emergency fund by putting 4-6 months expenses into a savings account.
- Pay off all consumer debts. Consider the benefit of paying off your home. If you have a low interest rate, it may be better to invest the money for a greater return.
- Set aside money for your children’s college expenses if that is your desire.
- Plan for your retirement. Decide when you would like to retire and plan accordingly.
Your financial adviser will assist you with make the correct decisions and set you on the path for a better financial future.
While it may seem wrong to be happy for an inheritance, nothing would be worse than spending the money frivolously and powered by emotion. It is very important to take the time to grieve before making any poor choices that can not be reversed. Don’t rush into any decisions; you might consider putting the money into a certificate of deposit that will generate a little bit of interest while you weigh your options.
