Navigating Your Inheritance:
Making Wise Decisions for the Future
Inheriting wealth, whether in cash, real estate, or other assets, is a unique experience that can bring both opportunities and challenges. While it provides a financial cushion, it often comes with emotional complexities, as inheritances are typically tied to the loss of a loved one. Understanding how to manage this new financial responsibility can help you honor the giver’s legacy while securing your financial future. Here's a general guide to navigating the journey of inheritance wisely.
1. Manage Expectations: Don't Count Your Chickens
Anticipating an inheritance? It’s essential to avoid relying on it before it’s a reality. Circumstances can change—unexpected expenses, charitable donations, or even financial mismanagement could reduce the inheritance. Focus on building your own financial stability instead of counting on a potential windfall.
For instance, Baby Boomers report planning to pass down far more of an inheritance than Millenials expect—often exceeding $1 million for those working with financial advisors. Still, self-reliance remains key. Prioritize saving, investing, and minimizing debt to secure your future, inheritance or not.
2. Open Conversations: Understand the Intentions
If possible, talk with your loved ones about their wishes for the inheritance. Knowing their intentions can provide clarity and alleviate stress when the time comes. If such conversations weren’t possible, give yourself time to pause after receiving the inheritance. Grieving, coupled with the responsibility of newfound wealth, can cloud decision-making.
3. Take Your Time: No Need to Rush
Upon receiving an inheritance, resist the urge to make immediate decisions. The emotional impact of grief can make it harder to think clearly. Allow yourself to process your emotions, and seek trusted advice to guide your next steps. Whether it’s a sum of money or an asset like property, taking a measured approach ensures you make choices aligned with your financial goals and values.
Mixed emotions are common when inheriting wealth. Guilt, gratitude, or even anxiety about “spending it the right way” are natural reactions. Remember, honoring the giver's legacy doesn’t mean adhering strictly to what they might have done but rather ensuring their gift creates a lasting positive impact.
4. Avoid Impulse Spending: Balance Splurging and Saving
Treating yourself or loved ones is perfectly fine, but set boundaries to avoid overspending. Consider placing the funds in a safe account or investment with a guaranteed return for a few months. This “cooling-off period” allows you to think through your priorities without the temptation of impulsive purchases.
While it’s natural to splurge on a special item or experience, remember that wealth, once spent, is gone. A thoughtful balance between indulgence and investment can extend the impact of your inheritance for years to come.
5. Look at the Bigger Financial Picture
An inheritance offers a rare chance to reassess your overall financial strategy. Ask yourself questions like:
- How can this money support my long-term goals?
- Should I use it to pay down debts, invest, or save for retirement?
- Are there opportunities to grow the inheritance for future generations?
If the inheritance includes property, consider market conditions before making a decision. For instance, holding off on a home purchase until market conditions improve might be prudent. Alternatively, investing in real estate during favorable conditions could yield long-term returns.
Inherited real estate also requires careful evaluation. Would it be better to live in, rent out, or sell the property? Remember to factor in taxes, maintenance, and potential mortgage obligations.
6. Address Debts Strategically
Using inheritance funds to pay off high-interest debts like credit cards or student loans is a sound financial move. For lower-interest debt, like a mortgage, weigh the emotional benefits of being debt-free against the potential for higher returns from investing the money elsewhere. A financial advisor can help evaluate the pros and cons based on your unique situation.
7. Invest for the Future
After paying off debts and addressing immediate needs, consider investing the remainder of your inheritance. It may be wise to work with a financial planner to create a diversified portfolio aligned with your goals. Whether investing in stocks, bonds, or real estate, a gradual, thoughtful approach can protect against market volatility.
If retirement planning is a priority, use the inheritance to free up earned income for contributions to retirement accounts. While inheritance money itself typically isn’t eligible for direct deposit into such accounts, it can offset other expenses, allowing you to save more strategically.
8. Understand Taxes and Legalities
The tax implications of an inheritance vary by asset type and your relationship to the deceased. Cash, securities, real estate, and business interests all have unique tax considerations. Consult a professional to ensure you meet all legal requirements and optimize your financial outcomes.
9. Seek Professional Guidance
Managing an inheritance, especially a significant one, can be overwhelming. Financial planners, estate attorneys, and tax advisors can help you navigate the complexities, from transferring assets to making sound investment decisions. If you inherit property, for instance, they can help you decide whether to sell, rent, or hold it as part of your portfolio while considering factors like capital gains taxes and ongoing maintenance costs.
10. Honoring the Giver’s Legacy
An inheritance can be a meaningful way to honor the memory of your loved one. Whether you allocate funds for charitable giving, set up a scholarship, or invest in something they were passionate about, these gestures ensure their legacy lives on. If the inheritance is beyond your immediate needs, consider planning your own estate to continue the cycle of giving.
A Thoughtful Approach: The Gift That Keeps Giving
An inheritance, when managed wisely, can be a lasting gift that enriches your life and those around you. Take time to process your emotions, seek professional advice, and make decisions that align with your values and long-term goals. Whether it’s investing, buying real estate, or giving back, the key is to honor the giver by using their legacy to build a brighter future.
This information presented in this post are accurate to the best of our knowledge as of the publication date and is shared for general educational purposes only.
Sources:
What to Do With a Large Inheritance
Things to consider if you are expecting an inheritance – TD Wealth
Questions About Tax & Estate Planning?
Sanjeev Kapil, MBA CFP - Investment Advisor, Manulife Wealth Inc.
As a Financial Planner & Investment Advisor for 15 years, Sanjeev has helped clients achieve their financial goals. By regularly monitoring & updating their financial plan that they create together, clients have attained great piece of mind knowing that their financial future is secure. His “client first” approach has earned clients’ loyalty and trust in which he takes great pride and joy in. Sanjeev is currently an Investment Advisor with Manulife Wealth with an MBA, and CFP. He has an investment team and an administrative support team to ensure that attention is being placed on client portfolios around the clock and support is always available for any client inquiries. We are proud to refer our valued clients to Sanjeev, confident that they are in excellent, capable hands. His personalized advice allows him to be part of your life journey, which he considers both an honor and a passion. Like us at The Sharda Group, he takes genuine joy in witnessing the successes of his clients.
