Navigating Inheritance from a Financial Advisor

Receiving an inheritance can be overwhelming, and knowing how to manage it effectively isn't always straightforward. With careful planning, you can make smart choices that could increase the value of your inheritance. This also honors the memory of your loved one. Let's explore how to prepare for an inheritance and some smart strategies for using the funds.

How to Prepare for an Inheritance

If you expect to receive money or assets from a loved one’s estate, there are some important steps to take. Here are some key considerations before your inheritance arrives:

Get Organized: Start by gathering all relevant legal and financial documents in one place for easy reference.

Review Your Financial Situation: Look at your current assets and debts. This will help you see how the inheritance affects your net worth. This will help you set new financial goals and create a solid plan moving forward.

Seek Professional Advice: It’s often beneficial to consult with financial advisors, tax professionals, or estate planning attorneys. They can provide guidance specific to your circumstances and help you make informed choices.

Don’t Rush Decisions: Avoid making any significant financial moves right away. Waiting at least a year before making big investments or spending choices can help you stay calm during an emotional time.

Consider Parking the Money Safely: While you decide on long-term plans, consider placing the money in a secure, low-risk account. Options like certificates of deposit, money market accounts, and Treasury bills may not give high returns. However, they can offer stability as you evaluate your situation. Consulting with a financial advisor can help you determine the best short-term solution.

Educate Yourself on Investing: If you're not familiar with investing, consider taking time to learn the basics. Gaining a clearer understanding of investment options will give you more confidence when making decisions about your financial future.

What Does It Mean to Disclaim an Inheritance?

Though not very common, there are situations where you might decide to refuse an inheritance. This process is called "disclaiming." It means giving up your right to the assets. This allows the assets to go directly to the next beneficiary.

For some, receiving an inheritance can feel more like a burden than a benefit. Inheriting assets can cause tax issues or financial problems. There may also be personal reasons for not accepting them.

If you’re considering disclaiming an inheritance, keep in mind that the rules and procedures vary by state. It's wise to consult with a legal professional to understand the specific requirements and timelines in your area.

To let someone else receive the inheritance, you must decide to disclaim it before accepting any part.

How to Disclaim an Inheritance

You can choose to refuse all or part of an inheritance, which lets the assets pass to the next named beneficiary. This can be helpful if younger beneficiaries can manage or invest the funds better. It is also useful if there are worries about estate taxes.

You usually need to decide to disclaim within nine months of the person's passing. You must do this before taking any assets.

Claiming an Inheritance

When you claim an inheritance, you usually have three main choices: rolling it over, cashing it out, or leaving the money where it is. The specifics will depend on the type of account involved.

If you are a surviving spouse, you can transfer the inherited assets. You can move them into your own traditional IRA, a Roth IRA, or an inherited IRA. It's important for any beneficiary to know the tax effects before cashing out. Be sure to talk to a financial advisor for clear advice.

Depending on the account type, you might also have the option to leave the money where it is temporarily. This could allow you to take required minimum distributions (RMDs) and follow the specific rules of the account.

Smart Ways to Use Your Inheritance

An inheritance offers an opportunity to strengthen your financial situation. Here are a few practical steps to consider:

●      Pay Off High-Interest Debt: Reducing debt can free up more of your monthly income.

●      Build an Emergency Fund: Set aside 3–6 months' worth of essential expenses for unexpected situations.

●      Reevaluate Your Investment Strategy: Consulting with a financial advisor can help align your investments with your goals.

●      Invest in Yourself: Use the funds to pursue further education, start a business, or take a career break.

Other Ideas for Using an Inheritance

Spend Wisely: Consider spending a portion of the inheritance in ways that honor your loved one. This might mean purchasing a reliable car, taking a meaningful vacation, or making necessary home improvements.

Support a Cause: Donating some of your inheritance to charity can make a positive difference. You can honor your loved one’s memory in several ways. You might make a memorial donation. You could also place a bench in a favorite park.

Another option is to support a cause they cared about. Based on the size of your donation, you can write a check, give valuable assets, or set up a formal giving plan.

Bottom Line

Managing an inheritance can be both a financial and emotional journey. With careful planning and good advice, you can make choices that could improve your financial future. These choices can also honor your loved one’s legacy.

Whether you decide to invest, pay down debt, give to charity, or take some time before making any big decisions, remember that an inheritance is an opportunity to create a positive impact in your life and potentially in the lives of others. Take the time you need to make informed decisions that align with your goals and values.

Sources:

https://www.fidelity.com/learning-center/life-events/what-to-do-with-an-inheritance

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.