Strategic Choices: Deciding What to Do with Inheritance Money

By Jake Oyler

Deciding what to do with inheritance money can feel overwhelming, especially if it comes suddenly. In this blog, we follow Hannah’s story to help you prepare your own strategies. Our step-by-step advice can guide you through deciding what to do with your inherited funds, ensuring you feel supported at every turn.

Hannah’s Journey

In the aftermath of her mother’s passing, Hannah found herself in an emotional and challenging situation. Hannah has been the caretaker for her mother since her father passed away almost a decade ago. That responsibility has been even more difficult since Hannah’s divorce five years ago. The loss of her mother has been devastating for Hannah, but it has also brought her some relief, knowing that her mother is now at peace and the responsibility of taking care of her is done. During the grieving process, Hannah knows in the back of her mind that she has a new responsibility. She inherited a sizeable amount of money from her mother and must figure out what to do with those funds. Hannah doesn’t have a lot of experience in managing her finances, as her former husband used to handle most of those tasks. She had a close relationship with her mother and wants to use her inheritance in a way that would make her mother proud. Hannah knows that she will need help with this process. Let’s examine some of the considerations that Hannah and others like her should review when wondering what to do with inheritance money.

Get Organized

Before making any decisions, take the time to fully understand the nature and extent of your inheritance. You should have access to all relevant documents, such as wills, trusts, and financial statements. No decisions should be made until you are fully aware of the details of your inheritance. The complexity of an inheritance will vary depending on the type of assets and the structure of the estate.

Take Your Time

Losing a family member brings with it a variety of emotions and challenges that make the grieving process a vulnerable experience. This experience is different for each person, and it’s important to understand your limits. When discovering what to do with inheritance money, it’s vital to be in the right state of mind when making significant financial decisions. You must allow yourself time to deal with your loss before diving into the complexities of financial management. While it may be tempting to immediately allocate your inheritance, resist the urge to make impulsive decisions. Take the time to consider your options carefully before allocating any assets. Rushed choices may lead to regrettable outcomes in the long run. Assets that took a lifetime to accumulate should not be dispersed without careful and educated consideration.

Legacy

When a loved one passes away, you reflect on the memories and emotions that you experienced with that person. You reflect on what was important to them and what they meant to you. When you receive an inheritance, remember their legacy. Consider their values, aspirations, and the effort they put into accumulating these assets throughout their lifetime. Honoring their memory can guide you in making decisions that align with their wishes and values. What you do with the inheritance you receive will affect the legacy that you leave to your loved ones.

Seek Assistance

Decisions surrounding what to do with inheritance assets can be very complex and require careful consideration and planning. If you are unfamiliar with these processes, consulting with a financial advisor can provide invaluable guidance in navigating complex financial matters. In addition to a financial advisor, consulting with a tax advisor or estate attorney may be necessary. Experienced professionals can help you understand the implications of your inheritance, devise a strategy, and ensure compliance with legal requirements. The choices you make with your inheritance can affect your long-term financial success.

Familiarize Yourself with Tax Implications

Each inheritance is different, and many different assets can be included. You could inherit money, investment accounts, real estate, cars, jewelry, art, and many others. Various types of inheritances and where you live may have varying tax implications. Take the necessary time to evaluate the tax consequences of your inheritance, including potential estate taxes, income taxes, and capital gains taxes. Understanding these factors will help you make informed decisions and optimize your tax position.

Create a Plan

You likely have some type of plan or budget you adhere to with your finances. When you receive income, you decide which obligations those funds need to be used for. After all your obligations are met, you may have some money left over to spend on something you want. The same consideration should be given to inheritance assets. Develop a comprehensive plan or budget for managing your inheritance so you know where every dollar will go. Outline your financial goals, such as debt repayment, savings, investments, and charitable giving. Receiving inheritance money should make you reconsider your long-term and short-term financial goals. Take time to consider your options and decide where those funds will be best used. Try to avoid making impulsive decisions that may affect long-term success. Establishing a clear plan will provide structure and direction for your financial decisions.

What Should I Do with Inheritance Money?

It’s vitally important to go through each of the steps discussed above. When choosing options for inheritance funds, it’s important to diversify when possible. Here are some options for you on what to do with inheritance money:

Savings

Consider setting aside a portion of your inheritance to boost your liquid savings. You should have an emergency fund of 3-6 months of expenses.

Pay Off Debt

A great way to use inheritance funds is to pay off or pay down your debts. Consider your high-interest debts first, like credit cards, personal loans, or student loans. Paying down your mortgage may also be advantageous.

Invest The Funds

Investing inherited funds is a great way to prepare financially for the future and help you reach your long-term retirement goals. When investing, it is important to diversify your money to reduce risk. A financial advisor can be especially helpful when investing in a diversified portfolio.

Donate to Charity

Honor your loved one’s legacy by supporting causes and organizations that align with their values and passions. This is a meaningful and selfless option that can help others who may be less fortunate.

Fund Education Savings

There are different types of accounts that allow individuals to save for future education expenses. Contributing to these plans is a great way to diversify your inherited funds and help you and your loved ones with future education expenses.

Spend Money on Yourself, But Be Careful

When you receive an inheritance, you may be tempted to spend the funds on something you want but don’t need. It’s okay to spend some money on yourself, but be cautious when you do. Consider the value of the other options listed above before making purchases. Above all, avoid making impulsive purchases.

Final Words

Inheriting wealth entails both privileges and responsibilities. By following these steps and exercising prudence with your decision-making, you can effectively manage your inheritance, honor the legacy of your loved one, cultivate your own legacy, and set yourself up for long-term financial success. You will likely find yourself in a similar situation to Hannah someday and may need assistance when you inherit wealth. When that time comes, we would be happy to help you walk through your questions- no obligation, just an opportunity to review your situation and assist in any way we can. Ready to explore your options with your inheritance? Contact us for a no-obligation discussion. Like Hannah, you deserve personalized support to make informed choices that honor your legacy and secure your future. Let’s talk—help is just a conversation away.

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