How to Be a Good Steward of Your Inheritance
When you receive an inheritance, you may experience a gamut of emotions. You’re saddened at the personal loss that has led to pecuniary gain. You’re happy to receive whatever you have, and awed at the life’s work than has yielded you a bounty. Your first instinct may be to rush out and buy that nice car you’ve had your eye on for years; however before you make any large purchases, you might want to slow down and think about what good you can do with the money or assets you’ve received.
Clear Yourself of Debt . . . or Someone Else
Depending on the size of your inheritance, there may be no excuse for continuing to carry large amounts of unsecured debt, paying tons of interest. If you have such debt, you may want to start by looking at how best to approach paying it down. You can pay off credit card balances, car notes, and mortgages with your newfound wealth. A good idea regardless is to go through your options with a financial advisor and discuss how best to handle using your inheritance to tackle debt.
Take Care of Family
Your immediate family may not have needs right away. However, you should start to think about the future, especially if you have children. Factor an inheritance for your loved ones into your regular budget. If you have a set percentage of pay to spend and save, incorporate the liquidity into that budget in the same measure. If you have inherited property or other assets, talk to a financial advisor about how best to convert the asset into cash, or even if you should at all. If you have children, an education trust may be on your list of savings priority. Most of all, you will want to make sure that you pass on the inheritance to the next generation. That means you’ll have to think about saving and investments.
You are likely (hopefully!) already thinking of savings, Roth IRAs and other investment strategies upon receiving an inheritance. You can also invest in other ways, like purchasing a new home or rental property. Of course, you'll want to balance any investments with debt reduction as well.
Boost a Worthy Charity
If you are knowledgeable about finances, you know of the tax benefits of charitable donations. Giving to a charity may help reduce some taxes owed thanks to your new capital gains. You will also be contributing to your community or an organization in ways you could not before. You may establish a trust that will help fund a charitable organization for years to come. As a nice touch, you could establish the trust in the name of the family member that passed on.
You don’t have to limit the gift-giving to a charity. You can spread the wealth among family and friends. Gifts have tax implications like charitable donations, so it’s something you will want to talk about with a financial planner.
Take Great Care
Many people joke about spending their paychecks before they receive them. That may be the case for you and your inheritance, especially if it is something you have been anticipating. You may want to resist the urge to splurge. You may also have previously unknown to you relatives approaching you with “fantastic” notions of business opportunities that can’t miss, or those who are in dire need. Think hard and do your homework before rushing into anything.
Talk Things Over
You shouldn’t make these big decisions alone if you hope to pay forward the legacy you received. Of course, you can talk things over with family members, though finances can be a difficult topic. You can speak with the executor of the will or trust if that’s how you received the inheritance. The executor is often someone your deceased loved one trusted enough to handle their affairs posthumously. Hopefully, that will make them a good source for advice. You can address these issues with an attorney who is well versed in finances, taxes and investments.
It may be a good time to establish a relationship with a financial advisor if you don’t already have one. It may not have made sense to have a financial advisor previously, but now that you have a new source of funds, talking to an experienced professional will be a good idea.
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