When you receive an inheritance, you may experience a wide range of emotions. You’re saddened at the personal loss that has led to your unexpected gain. You’re happy to receive whatever you have, and humbled by the person who left you such a generous gift. Your first instinct may be to rush out and buy that nice car you’ve had your eye on for years or to finally take that dream vacation; 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
Depending on the size of your inheritance, there may be no excuse for continuing to carry large amounts of consumer debt that charge high interest rates. 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 student loans with your newfound wealth. A good idea regardless is to go through your options with a financial planner and discuss how best to handle using your inheritance to pay off your 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 savings goals. If you have children, placing some of your inheritance in a 529 Plan for you kids may be on your list of savings priority.
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. Resist the urge to splurge or spend your new found gain too rashly. You may have relatives, friends, or even strangers approaching you with business opportunities that can’t miss, or asking for your help financially. 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 trustee of the trust if that’s how you received the inheritance. 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 planner if you don’t already have one. It may not have made sense to have a financial planner previously, but now that you have a new source of funds, talking to an experienced professional will be a good idea and save you from potential heart ache down the road.
The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.