Being the beneficiary of a family member’s inheritance should be regarded as a joyous occasion. However, all too frequently, it turns into a burden. Over the next 25 years, it is anticipated that assets totaling $68 trillion will be passed down from the Baby Boomers to younger generations, and many of those beneficiaries will be unsure of how to put their new found fortunes to good use.
A large portion of people – as many as one in three beneficiaries – report either no change or a decrease in their wealth as a result of receiving an inheritance. Following the receipt of a financial windfall, some people actually experience a reduction in their wealth. When they have enough money, they take a couple of holidays and buy a nice new car. Before they realize it, the money has vanished and they have nothing to show for it. It is tempting, of course, especially if they have never had a significant amount of cash in their hands or accounts. Would not it be better if they used some of that money to pay down their debt, save for retirement, or pay off their mortgage?
Make the most of your inheritance because it has the ability to alter your family dynamics for generations to come. Listed below is our advice to assist you in making the most of your inheritance.
Take it easy
When a loved one passes away, you are not often in the correct state of mind to make important financial decisions. The good news is that, in the vast majority of circumstances, you will not be required to make any important decisions straight away. If you are grieving, there is nothing wrong with letting your inheritance rest for a bit.
For a few months, if you have received a lump sum of money, you should keep the money in your money market account. Take a deep breath in and out. Allow yourself some time to mourn. You can then concentrate on developing a strategy for managing your inheritance when you are ready.
Find a way to remember them using the money
When you begin to consider what you will do with the inheritance you have received, it is critical to remember where it originated from. We always advise inheritors to reflect on all of the hard work and sacrifice that went into making their inheritance possible before accepting it. It is about a person’s legacy that we are discussing here!
Keeping that in mind will instill a feeling of duty, accountability, and intentionality into the situation, allowing you to make the most of your inheritance and avoid financial ruin.
Get professional financial advice
People crawl out of the wood when you receive a financial windfall, such as an inheritance, to advise you on what to do with your fortune, often hoping to gain in one way or another from it.
That is why you should put together a board of advisors, or a group of highly competent professionals, who will guide you through the inheritance process from start to finish. Depending on the type of inheritance you receive and the amount of inheritance you receive, you may need to seek advice from several, or maybe all, of the following professionals:
Certified public accountant (CPA) or tax advisers, insurance agents, investment professionals, estate planning attorneys, tax attorneys, and real estate agents are all examples of professionals who work in the accounting and tax fields. These individuals are not present to direct your actions. They should be educators who will sit down with you and assist you in understanding all of your selections and alternatives.
What else might you do with a large sum of money?
Set a goal for your money
Determine your investment objectives, when you need or want to attain them and your level of comfort with risk for each objective before you can begin to figure out how to invest your money.
Long-term objectives: Retirement is a common end goal, but you may have other objectives as well, such as: Are you looking for a down payment on a house or a college tuition scholarship? In 10 years, do you want to buy your dream vacation property or go on a 10-year anniversary trip?
The vacation you want to take next year, a house you want to buy next year, an emergency savings buffer or your Christmas kitty are all examples of short-term aspirations. In this article, we will be primarily concerned with long-term objectives. The topic of investing without a defined purpose in mind will also be discussed. After all, the goal of increasing your wealth is a commendable objective in and of itself.
What should I do if I receive a cash inheritance?
When it comes to money, you should always try to do three things: donate, save, and spend. It is no different when it comes to inheritance. And, just as with a monthly budget, it is critical to designate a specific purpose to each and every dollar of your inheritance.
We advise people to take a pie-graph strategy, which simply means to think of your inheritance as if it were a pie that you were going to cut into slices and distribute among them. Here are some examples of slices that you might consider including in your decision on what to do with your inheritance:
- Give a portion of it: Giving should always be a component of your financial plan. Give ten percent of your income to your religious organization if you are part of one or a charitable organization of your choice if you can.
- Getting out of debt: If you have debt that you are trying to pay off, you can utilize a portion of your inheritance to help you get ahead on your debt snowball. Reduce your debt as much as you possibly can. If you have the ability to write a check and be debt-free the next day, do so.
- Create an emergency fund for yourself: When you have three to six months’ worth of living expenses saved up in a money market account, you will be better prepared to deal with life’s major emergencies.
- Reduce the amount of money owed on your mortgage: Can you picture not having to make any more mortgage payments? It is possible to go closer to the finish line by using a portion of your inheritance to pay down your mortgage, which can save you thousands of dollars in interest.
- Make provisions for your children’s college fund: There are a variety of options for funding college expenses other than using your inheritance. To make up for the lost time in saving for your children’s college, you might place a portion of your inheritance into an Education Savings Account (ESA), a 529 Plan, or a UTMA or UGMA account (Uniform Transfer orGift to Minors Act) to make up for the lost time.
- Take some pleasure in it: It is fine to set away a little portion of your inheritance to spend on yourself, but make sure that you have a decent financial buffer to keep you comfortable.
You should also look at how you can make your money grow and one of the ways of doing this is through careful investment of your money. One of the most traditional ways of doing this is through the purchase of real estate. Real estate is a lucrative form of investment but the high entry points are often a barrier to many people getting into it. Of course, if you have big bucks – and we mean more then £2 million or the equivalent in foreign currency going spare, you could invest it into the United Kingdom. You would be entitled to apply for a Tier 1 Investor Visa if you can show that you are going to invest your money in something in the UK. It could be something a little different to explore and give you a chance to start a new life in the United Kingdom, if that has been a dream of yours.
Of course, this is not the only way of investing your money and if you have nowhere near £2 million or anything near enough to buy property, do not be disheartened as you can still make your money work for you. Stocks and shares are a popular way of investing your cash and if that is not something that you like the idea of, there are other ways, including:
- Investing in collectables such as fine wine and art
- Gold and silver and other precious metals
- Becoming an angel investor or peer to peer investor
Whie the temptation to go and blow all of the money that you are given through an inheritance can be strong, there are many better ways to use the money and honor the person who left it to you. The above tips and ideas should give you a good place from which to start from.