Managing an Inheritance

The death of a loved one can create a great deal of emotion. It can also create a surprisingly large amount of work. If you are currently navigating these difficult waters, we hope you have family, friends or trusted associates who can help with details that may seem insignificant in light of your loss. When you are ready, there are a few important and possibly time-sensitive items to consider.

Assemble your financial team

Generally speaking, the size of an inheritance determines how much help you will need. It doesn’t make a lot of sense to hire professionals if they will require a large portion of an already humble inheritance. On the other hand, if you receive a large sum, real estate, a 401(k), IRA, collectibles, antiques, stock certificates and bonds, then you’ll want a lot more help. 

Most situations will at least require a financial advisor and CPA. For large sums or more complicated issues, it is common to hire an attorney and perhaps an insurance agent. Below is a summary of reasons for hiring different professionals:
  • Investment Advisor - Your advisor knows your financial situation better than anyone else. It is important to look at how new funds and investments fit in with or change the old ones. How comfortable are you with the risk level of inherited investments? If you are unsure where to start, a financial advisor can point you in the right direction. 
  • CPA - An accountant can help with tax implications. Find out if any part of the new wealth is considered income. Do you need to pay any taxes on an inherited IRA or 401(k)? When are you responsible for property taxes on an inherited home?
  • Attorney - Moving into the high net worth category could make you an attractive target for litigious individuals. An attorney might suggest an umbrella insurance policy or liability coverage. Attorneys can also help ensure you receive life insurance payouts.
  • Insurance agent - If you plan on keeping tangible assets, you may desire property insurance. Agents can also fulfill suggestions from the other professionals listed above. 
Avoid one-stop shops where your financial team is under one roof. A good advisor or insurance agent will know a little bit of tax law and a good attorney will know a bit about insurance. So, by hiring professionals from different locations, you create a system of checks and balances where each professional can give you an idea of how well the other teammates are performing. 

Keep it private

It may be more important than you know to avoid announcing your new wealth. Money can create surprising changes in relationships. You may find yourself besieged with unsolicited investment pitches or business opportunities. Friends and neighbors may become resentful or expect you to ‘pick up the tab’ now. If word gets around, you may be inviting fraud or theft. 

Even other family members are not immune and may not need to know specifics. In fact, it is not uncommon for parents to leave different amounts to each child. Unless you know for a fact that your siblings received the same amount, it might be a good idea to keep the details private. 

Don’t make major lifestyle changes

There are some time-sensitive issues that a financial advisor or CPA can identify, but for the most part, it is suggested to avoid making any major decisions in the near future. Resist the urge to go out and purchase new toys or expensive gifts. If applicable, avoid the temptation to resign from your place of employment - or at least stick around for a while as you consider your options. 

Remember, an inheritance is not an ongoing income and will run out eventually. The best move may be investing in your retirement or paying off high-interest debt rather than making any lifestyle changes. Inheriting a lump sum of wealth can carry strong emotions. Often times, beneficiaries have difficulty thinking clearly and will later look back in surprise at some of their choices. 

What to do next

  • Speak with your investment advisor to see how this affects your current goals and investments. Ask for suggestions on what other professional help might be needed.
  • If needed, begin interviewing candidates for a CPA or attorney.
  • Continue living as you were. Unless there are high-interest loans or harsh living conditions, there is no need to make any drastic changes.
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