Inheritances can be tricky. They can be a blessing, a burden, or a bit of both, depending on the circumstances. The process of receiving an inheritance can vary wildly—from a simple signature on a dotted line to drawn out, multiyear legal battles with other claimants. The difference often comes down to the quality of estate planning (or lack thereof). If the deceased didn’t already work with an estate attorney, consider hiring one first.
The challenge of Inheritances
Giving blanket advice about inheritances is tough because no two are alike. You might inherit a thriving business, a stock and bond portfolio, or a basement full of childhood mementos. Unlike other financial windfalls—like a raise or a bonus—the usual money management rules don’t always apply. Inheritances often come with emotional strings attached, which makes decision making more complex.
For starters, don’t be surprised if you feel tied to the assets. I’ve seen people hold onto expensive China collections or stacks of baseball cards simply because of the memories they evoke—and that’s perfectly okay! If you’re struggling with the emotional weight of it all, therapy can be a fantastic place to begin. Once you’ve had time to process, you can start thinking about what to do with your newfound wealth.
Step One: Tackle High Priority Debt
When the dust settles, it’s time to look at spending priorities—especially if your inheritance is substantial. First on the list: outstanding high interest debt. Crazy auto loans or credit card balances with sky-high APRs should be your top targets. Next, consider medical debt or other bills that can be settled in full—lumpsum discounts may save you.
Step Two: Define Your Goals
Once the urgent debts are handled, the possibilities open up. How you choose to use your inheritance is deeply personal, and there are rarely “wrong” answers. Some common priorities I’ve seen include:
· Complete Debt Paydown: Knocking out mortgages, car loans, or other lingering balances.
· Savings and Investing: Building a nest egg for an earlier retirement.
· Lifestyle Inflation: Treating yourself to vacations or upgrades you’ve always wanted.
· Career Moves: Starting a business, replacing income to pivot careers, or funding education for yourself or loved ones.
· Generational Wealth: Setting aside money for kids, grandkids, or future generations.
That last one—leaving a legacy—is a big motivator for some. If passing wealth to the next generation is your goal, there are several tools to help make it happen efficiently.
Tools that can help build Generational Wealth
Here’s a quick rundown of some popular options:
1. Trusts: These give you control over who gets what and when, even after you’re gone. They can also remove assets from your taxable estate, potentially bypassing estate taxes. While trusts can be pricey to set up, they’re a powerful way to maintain control.
2. UTMA/UGMA Accounts: Often used for college funding, these accounts transfer assets to minors with fewer restrictions than 529 plans.
3. 529 Plans: A go to for education savings, 529s are increasingly flexible—recent rules even allow rollovers to Roth IRAs, giving beneficiaries more options.
4. Taxable Brokerages: These accounts get a “step up in basis” at death, mitigating taxes for heirs (though the assets remain part of your estate).
5. Real Estate Investing: This offers tons of flexibility—gift ownership in a corporation, transfer interest in a home, or leave property to a specific beneficiary.
Each option has its pros and cons, and the right choice depends on your goals, family dynamics, and financial situation.
The Emotional and Practical Challenges
Navigating any windfall is tough, but inheritances add extra layers of complexity. Emotional baggage, family stress, and tough decisions can make the process feel overwhelming. If you’re struggling to sort through it all, don’t hesitate to seek help—whether it’s from a financial advisor, an estate attorney, or even a trusted friend.
At the end of the day, an inheritance is more than just money or assets—it’s a legacy, a memory, and sometimes a challenge. How you handle it is up to you, but with a little planning and the right support, you can turn it into an opportunity that benefits you and the generations that follow.
If you’re feeling stuck, reach out—we’re here to help!