4 Things To Do When Receiving an Inheritance

If there’s a chance you might receive an inheritance, knowing these four things is going to be important. Store these in the back of your brain for future reference.

Expect a Wait Time

Number one – settling an estate is a big task, so expect the process to take some time. When a person passes away, if certain things are not in order, it can make things a lot more difficult. Gallup says that less than half of the adults in the US have a will right now. However, even when things are in a proper estate plan, it can still take time.

If assets are held in a trust, the probate process doesn’t have to happen, which is nice, but even distributions from trusts can take a while. They can also be hard to understand depending on the type of trust. Because of this and some other factors that come into play along the way of the estate settling process, it can take months or even years to settle an estate. Just knowing that can help you manage expectations, not just for yourself but for siblings or other people involved.

Plan Ahead

The second thing is have a plan ahead of time before you actually receive the inheritance. Sometimes, getting an inheritance can feel like finding money, and maybe you haven’t factored this wealth into your retirement plan. Really, it is new funds now, but it doesn’t mean we shouldn’t have a plan in place.

There’s a researcher named Richard Taylor who found out that people who receive small inheritances are actually more likely to just spend it, whereas those who receive larger inheritances are more likely to invest it. Either way, the parent or relative who left this money to you wanted to give it to you for a reason.

Thinking in the order of priority of your financial life, it may make sense to check off the foundational financial planning things, like making sure you’ve got a few years worth of expenses in conservative assets, an emergency fund, or maybe having high interest debt paid off. Those are some of the things that can really make the biggest difference in your financial life. Consider those things first

If it is a lot of money, be sure to rework your retirement plan if you’re 50 or older. Build it into that sustainable withdrawal rate now. See what changes with your withdrawal rate. If you’re not doing this already, here’s a DIY retirement planner that helps you map out your retirement plan.

Don’t Forget About Taxes

The third thing is to not forget about the tax impact. If you’re inheriting an IRA, 401k, or other pre-tax money, it will most likely be taken out over the next 10 years or so. Every time you take money out of those types of accounts, you will probably have to pay tax on those monies. Be  sure you don’t get surprised by the taxes, especially that first year after receiving an inheritance. Talk to an accountant as you’re working through this inheritance process.

Review Your Estate Plan

The next thing that receiving inheritance will often do is cause you to review your own estate plan. You’ll learn a lot about the process as you talk to different people, like the attorneys and advisors. Most likely, this will motivate you to make it as easy as possible for the people who are going to receive what you have after you pass away.

That might look like keeping clear records of all your accounts and estate planning documents (trusts, wills, powers of attorneys, and the advanced healthcare directives). Keep everything all in one place so that those in charge of your estate can find what they need easily. We’ve actually got a family planner that helps you do this if you’re looking for something like that.

Try to talk to your family about money while you’re still around to have those conversations. It’s obviously much harder to find answers from someone who has passed away than to have an honest conversation and talk about the expectations, or what people are expecting related to inheritance.

The best thing you can do for the people you’ll be leaving behind is to plan ahead, and when you get an inheritance, you’ve got a chance to change your life for the positive. Take the time, make a plan for your current finances, and set goals for a good future. It’s a really great way to honor and remember the person who passed away and left you this inheritance.

Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.

Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you. 

Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.