What to Do with an Inheritance

Receiving an inheritance can be both a gift and a challenge, especially during a difficult time. An inheritance is the transfer of assets from a person after their death to their beneficiaries which may include cash, investment or retirement accounts, real estate, a life insurance policy, personal property, or businesses. Navigating an inheritance, even when anticipated, presents challenges. As you take inventory and begin planning, follow these steps to feel confident when accepting an inheritance.

Don’t rush into making big purchases

An inheritance comes with questions on how to best manage the assets you’ve received. It’s common to become overwhelmed by complex paperwork, alongside coping with grief and other emotions. Take your time to plan carefully and move one step at a time. Review the tax implications of your inheritance so that you know how much money and assets you’ll receive. Don’t act too quickly making a big purchase and consider depositing your money in a money market or savings account to give you time to plan. Allowing yourself a few months to plan can make a significant difference in making well-informed choices.

Build your savings

If you’ve inherited cash, use the funds to build your emergency savings with a minimum of $1,000. An emergency fund covers unexpected expenses, and it’s recommended to keep three to six months of living expenses saved in this account. Make your emergency fund separate from the account you use daily so it’s less tempting to draw from for unnecessary spending. Texell’s Save First Account offers an enhanced rate and is designed specifically for emergency savings.

Pay off debt

An inheritance is an opportunity to improve your financial health. Use your inheritance as an opportunity to become completely debt free. Pay off high-interest credit cards, loans, and your mortgage if possible. If you’re unable to pay off all debt, follow one of the popular methods to reduce your debt as quickly as possible. These methods include debt snowball and debt avalanche which you can learn about both in Popular Strategies to Get Out of Debt. Reducing debt not only saves money on interest, it reduces your stress, and frees up future income for other goals.

Seek advice from professionals

Some inheritances come with complex tax rules and it’s important to understand how they may affect you. For complicated inheritances involving various assets, consult with experts. Certified Public Accountants (CPAs), estate planning attorneys, and tax attorneys help you understand the laws and tax implications. For instance, if you inherited an Individual Retirement Arrangement (IRA) from your spouse, you’ll pay income taxes if you choose to cash it out instead of rolling it over into another IRA.

Other professionals, like financial planners or advisors, explain your options if you want to use the inheritance to start an investment portfolio. Real estate agents guide you during selling a house that you inherited, while a tax attorney explains capital gains taxes from selling an investment or property.

Review your own estate plan

An inheritance is a good time to establish or update your own plan. Revise your estate plan if you inherit substantial assets, including property. Review your current will and make changes as needed, including beneficiary designations and establishing a trust account to manage property that minors might inherit. If you don’t have a will, consult an attorney for estate planning advice and to file these legal documents.

An inheritance comes with responsibility and opportunity. By taking your time, building a strong financial foundation, and seeking guidance if needed, you can make decisions and reduce your financial stress to create financial stability.

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