Inheritances by their very nature, create many mixed emotions. While you are grateful for the inheritance, you are grieving, which is a painful experience that impacts decision-making skills.
Perhaps the most important thing to know when you are grieving the loss of a loved one and expect to receive an inheritance, is not to make any big decisions. While an inheritance may change your life in a financially good way, as reported in The Reading (PA) Eagle Business Weekly’s recent article, “What to do and what not to do with your inheritance,” you are in a state of emotional crisis. Financial planning and big financial decisions will need to be made, but nothing needs to be done immediately, except for settling the business of the estate, if you are the executor. Here are some dos and don’ts to keep in mind:
What not to do with an inheritance
There’s no rush. Don't go nuts and spend every dollar immediately. Don't invest in long term or risky projects. Be patient.
Don't pay too much in taxes. Work with an estate planning attorney so you pay the appropriate amount to the IRS.
Don't pay off the mortgage. Although this can be emotionally fulfilling, it may not be the best use of your money. Take advantage of today's low interest rates and the tax-advantaged deductible mortgage payments. Create a financial plan so that you don’t run out of retirement funds.
Don't go on a mad spending spree. This should be self-explanatory.
Don't be pressured. Don’t be surprised if many people suddenly come out of the woodwork to offer their unsolicited advice—relatives, old pals, insurance agents, bankers and investment advisers. Just say, "No, I am not ready to make a decision yet." Likewise, don't get pressured into sharing your money with a friend or family member.
What to do with an inheritance
Save it. Deposit the money in the bank, a money market account or a short-term CD.
Pay off debt. Get rid of credit card balances and other high-interest debts that don't have tax benefits.
Do some financial planning. Figure out your long-range financial plan before spending any of this new found wealth and make plans for your retirement.
Update your estate plan. Make sure that your estate plan is up-to-date so your assets go to the intended persons, and you don’t waste it on probate fees and unnecessary taxes.
Meet with an estate planning attorney. If your financial situation has changed as a result of the inheritance, it makes sense for you to meet with a qualified estate planning attorney to update your will and other documents.
Reference: Reading (PA) Eagle Business Weekly (January 17, 2017) “Office Space: What to do and what not to do with your inheritance”