When people inherit an inheritance from a loved one, they become very vulnerable as they experience various emotions and are unable to handle finances at this time. If you happen to be one of them, here are a few considerations to ponder on to ensure that things do not go wrong.
1. Open one or more CD accounts.
Stash the money in the bank and if the amount is large, then divide the same and put it in different accounts in various banks. The best way to insure that you do not get tempted to use the money is to put it in CD for 3 months. Most of these deposits incur a penalty if it is withdrawn before time.
2. Make a will and get power of attorney
This is very important as you need to ensure that someone else benefits if anything happens to you. It is advisable to put your inheritance in a separate account that is not “joint” with your spouse as you may have to share the money in case you two decide to go separate ways!
3. Hire a financial planner to help you invest the money wisely.
Try to avoid a financial planner who charges a commission or has investments that they plan to thrust on you. Look online and you will find a suitable planner if you visit websites such as the National Association of Personal Financial Advisors. Interview a few before you decide on the right one. You should be able to look at long term goals such as retirement as well as short term goals.
4. Do not be in a hurry to settle your mortgage dues.
If you have any debts that warrant a high interest rate, try to settle those first. Make sure that you have enough money to cover your living expenses for the next year. It is advisable to add a liability policy as an umbrella to supplement your auto and homeowner’s coverage in case you are targeted for a lawsuit at a later stage. Your age should be a deciding factor as to whether you should pay off your mortgage or put the money somewhere safe for your retirement.
5. Plan for your retirement by saving more money
Check with your finance planner if you need to put aside some money for your children. You may wish to invest in a college savings plan or invest in a regular brokerage account that is taxable. If you are planning to purchase a home or a fancy car, make sure to set aside a few Treasury securities or CDs that mature on different dates. Do not dip into the inheritance amount as you will find large chunks going out of your savings.
If you are not familiar with the stock market get professional help to help you purchase bond funds and stocks that pay dividends. You can also think of index funds and mutual funds if you are able to generate more income that puts you into a high tax bracket.
6. Do not give up your job
Many people make the mistake of chucking up their jobs when they get an unexpected windfall. Unless you get a huge windfall that runs into millions of dollars, continue to work and put off that world trip that you always dreamed about as your money and you could soon be parted! Calculate the percentage you could spend every year from the windfall and try to stretch it till your retirement. Get your financial consultant to work out the math.
7. Take into account the brokerage fees and taxes
If you inherit a house you will have to pay a realtor their fees if you wished to sell it. You may be required to pay capital gains tax if you get a high price for the assets. The executor will ensure that all the property taxes are paid before the inheritance amount is handed to you. Read the different clauses that are in fine print and have them explained at length to you to help you make informed decisions when you are planning your future.
8. Sit back and relax
The entire experience can be exhausting though rewarding if you handle the inheritance amount and go by the rules. When everything is finally done, you could take that long-expected vacation and indulge yourself. However, make sure to use up only 105 of your inheritance.
9. Learn to be assertive and calm when claims are made
Many institutions and charities will approach you when they hear of your unexpected windfall. Your family members or friends may approach you for loans. Learn to reply in the negative and avoid sales people selling insurance and annuities, including investment bankers. You should be able to enjoy the inheritance that landed in your lap and have a happy carefree life as you approach retirement.
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