What Should I Do With My Inheritance
If you’ve recently received an inheritance—whether large or small—you may be feeling a mix of emotions. There’s often gratitude, or even surprise (I once had a client receive 100k from an elderly neighbor that he had helped over the years), sometimes guilt, and almost always one big question: “What should I do now?”
While there’s no one-size-fits-all answer, here are a few smart steps to consider:
1. Pause and Breathe
First, give yourself permission to not make any big decisions right away. If your inheritance came from the loss of a loved one, emotions could cloud your financial judgment. Let things settle a bit before making any major purchases.
2. Understand What You’ve Inherited
Is it cash? A home? An IRA? Stocks? Each asset comes with its own set of rules and tax implications. For example:
- Inherited IRAs might require you to take distributions within 10 years.
- Real estate or non-retirement accounts may get a step-up in “cost basis”, reducing capital gains taxes.
- Annuities or life insurance have their own payout options.
It’s worth talking with a Certified Financial Planner™ or tax advisor to understand exactly what you’ve received and what tax implications or other rules may be attached.
3. Create a Plan That Honors the Gift
Think of your inheritance not just as money, but as a legacy. How can it support your life in a meaningful way? Consider using it to:
- Build an emergency fund
- Pay off high-interest debt
- Save for retirement or a child’s education
- Take a thoughtful vacation in your loved one’s honor (I actually use my mom’s IRA required minimum distribution toward vacations)
- Donate to a cause they (or you) cared about
4. Avoid Impulse Purchases
It’s tempting to splurge a little (or a lot) but consider the long-term impact. An inheritance can be a rare chance to change your financial path for the better — don’t let it disappear on a whim.
5. Get Professional Advice
Even if you’re financially savvy, talking with a fiduciary financial planner can help ensure you’re using the inheritance wisely. You may only receive an inheritance once—it’s worth getting it right.
Final Thoughts
An inheritance can be both a financial blessing and an emotional burden. By taking a thoughtful, informed approach, you can honor the memory of your loved one and strengthen your own financial future.
Oh, you may have heard of someone disclaiming an inheritance. This is when a beneficiary for one reason or another allows an asset to go to the next person in line. This must be done in writing and within 9 months of the decedent’s passing.
Why would one want to disclaim? Sometimes it is for tax reasons. Letting certain assets go to a person in a lower tax bracket could be a wise tax strategy. Or perhaps, the beneficiary is on government assistance, and an inheritance would make them ineligible for benefits. Lastly, sometimes a beneficiary knows the wishes of the decedent were never updated in their estate plan and want to honor their wishes.
Have questions or something I may be able to help you figure out, schedule a quick complimentary call with me by clicking HERE to see my online calendar.
About the author: Rick Fingerman, CFP, CDFA, CCPS
Rick Fingerman, CFP®, CDFA®, CCPS®, is a founding and managing partner at Financial Planning Solutions, LLC. He has been helping individuals and families make sound financial decisions for over 30 years. Rick has been featured in The Wall Street Journal, Retirement Daily, Investment News, The Boston Globe, Investopedia, Financial Advisor Magazine, Financial Experts Network, and the Chicago Tribune.
Click HERE to receive our weekly newsletter.
Click HERE to sign up for my Healthy Wealthy Wednesday newsletter on Linkedin.
Know someone that recently loss a spouse? Here is an article that may be of interest.....The Loss of a Spouse
All the best.
Rick Fingerman, CFP®, CDFA™, CCPS®
617-630-4978
Rick@PlanWithFPS.com
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.