Receiving an inheritance from a family member is often a blessing, but without a plan for what you want to do with it, it can often be a stressful—and a sad reminder of your loss.
When you are a beneficiary of a life insurance policy or an inheritance, you may have gotten a general sense of the amount from your loved one while they were alive. You may have had some thoughts about what you wanted to do with the money, but whatever advance knowledge you had was all theoretical.
With the reality of the money in your possession, you may want to make big moves, like buying property or lending money to family members. Sometimes, grief and confusion can lead to rash decisions, but by taking a measured, thoughtful approach can avoid any missteps.
Take your time
When probate concludes and a lump sum comes to you, it’s OK if you are not yet emotionally ready to make a long-term financial plan. If the amount you inherited is larger than you thought it would be, it often can push you out of your financial comfort zone.
In most cases, you don’t have to decide right away, and there’s no need to make rash or drastic decisions.
You can start by directing the funds to a money market account or some other kind of high-yield savings account until you are ready to make long-term decisions.
Depending on the amount you inherited, a federally insured bank or credit union account can be a good choice. These accounts are insured for up to $250,000 per depositor, per financial institution, and you can set up different types of accounts to receive more coverage.
For example, if you open both a single account and a joint account, you’ll be covered for a total of $750,000. If you inherit more money than one financial institution can insure, you can spread it among several. Take the time you need to mourn, and when you’re ready, you can focus and make a plan for your inheritance.
Get professional advice
Once you’re ready, you need some professional guidance, and it’s important to choose qualified, ethical practitioners.
Finding the right financial advisor can mean the difference between setting yourself up to meet your financial goals or seeing your account dwindle down unproductively.
If you don’t already have a team of financial professionals, a fee-only financial planner can be a good approach.
A good financial advisor can also help you navigate the emotions that come with receiving an inheritance and help you understand all your options as you decide what to do with it.
If you don’t already have a team of financial professionals, a fee-only financial planner can be a good approach. This type of advisor only charges you for their services; they do not receive commission on investment transactions. This helps eliminate any conflicts of interest on the planner's part.
A financial planner can help you decide how best to handle the money in the short term and devise a long-term financial plan, also dealing with any non-cash assets you inherited.
You can find good financial advisors by asking people you know for recommendations, or many professional financial planning associations provide free databases of affiliated financial advisors.
When choosing a financial advisor, make sure they offer the types of services you’re looking for in your financial and non-financial life.
Pay down your debt
Depending on your situation prior to receiving your inheritance, you may also want to take steps to improve your immediate financial health. For example, experts recommend setting aside enough funds for three to six months' worth of expenses in an emergency fund.
Consider keeping these funds in their own high-yield savings account where you can access the money quickly if needed. If you haven’t maximized your retirement funds for the year, you may want to contribute to your IRA or increase your contributions to your 401K and use some of the money to fund your day-to-day expenses, since your paycheck may be reduced.
It can also make sense for a lot of people to pay down any high interest debt, like credit cards, or make additional payments against their mortgage to reduce interest payments over time. People with children may want to create or add to a college fund.
When someone dies, you may receive an inheritance as a final gift. This money can be a unique opportunity for financial stability, and this can be a wise way to honor they legacy you received.
But don't feel rushed into making any decisions and seek professional advice if you need it. Remember to do something nice for yourself in meaningful memory of your loved one, but it can be something small so you won’t derail your financial security.
You may be eligible for free bereavement support. Empathy can help with everything from funeral planning to estate administration, with step-by-step guidance and real-time expert support. Many people get free premium access to Empathy as a benefit with their life insurance claim. We partner with New York Life, Guardian Life Insurance Company, Bestow, Lemonade, and other leading carriers. When you make your life insurance claim, talk to your representative about whether Empathy is a benefit they offer.
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