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Handling an Inheritance: Top Things to Consider

June 12, 2015

Have you recently received an inheritance from a loved one? Before you book that expensive vacation, consider saving for retirement or college funds!

Receiving an inheritance, whether expectedly or unexpectedly, can leave you feeling financially relieved, but simultaneously overwhelmed by the new opportunities the money will present you. It is important to not hastily spend your inheritance, but rather to find the best way to incorporate your new assets into your current finances.

Five points of consideration

There are several points to consider while you process your new inheritance:

  1. Pinpoint what exactly you will be receiving and when you will be receiving it. Typically inheritances do not come in one check; you are more likely to receive portions of different assets over a period of time. You can talk to the estate’s executor for information on what assets you can expect to receive and when.
  2. Do not recklessly spend the inheritance, think long term! The inheritance might present the ability to buy something you never had the money for. Before you spend the money on home renovations, new cars, or lavish vacations, think about how the money can help with retirement or your children’s college funds.
  3. Determine how the inheritance will fit in with your current assets. Your asset allocation could be significantly altered depending on the size of the inheritance. Start by determining if your original asset allocation still works, and from that, you will be able to decide how to move more towards your intended allocation.
  4. Review the tax implications of inherited assets. It does not matter how long you have personally owned the inherited asset, any profits gained from the sale of inherited assets are subject to the long-term capital gains tax rate (usually 15%).
  5. Consider selling inherited assets that you have no use for. If you receive assets that do not meet your financial needs or that you are unable to manage, consider selling them. It is better to give up inherited assets that would be better managed by someone else rather than keep them for sentimental reasons.

Treating yourself to a luxury item with inherited money is acceptable, (after all, it is your money!) but keep in mind that a long term financial plan will reap much more rewards in the long run. Consult an estate planning advisor for more guidance on the process and your individual situation. Questions? Contact us.

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