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 that 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 carrying large amounts of unsecured debt and 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 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 converting the asset into cash, or even if you should. If you have children, an education trust may be on your list of savings priorities. 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.

Invest

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 also want to balance any investments with debt reduction. 

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 contribute 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. As a nice touch, you could establish trust in the name of the deceased family member.

You don’t have to limit the gift-giving to a charity. You can spread the wealth among family and friends. Gifts like charitable donations have tax implications, so you will want to talk about it 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 relatives approaching you with “fantastic” notions of business opportunities you can’t miss or those 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 discuss things with family members, though finances can be difficult. 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 of advice. You can address these issues with an attorney 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.

Wait

"Never make major money decisions in a high or a low." Before doing too much too quickly, ensure you've returned to a steady mental point. For some, this might be deciding to wait one to two years before making any major money moves to make sure they aren't impulsive or the wrong moves.

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