Clients often come to us after the passing of a parent or other loved one, and they know they will be receiving an inheritance. This can be an extremely sensitive and difficult time to navigate big decisions on your own, so here are the five things you should do when you receive an inheritance.
Number One: STOP. Don’t do anything. Think. Did you know that lottery winners can go broke at twice the rate of the general public? Don’t start spending your money without a plan in place.
Number Two: Make a wish list of things you would like to accomplish with your new assets. What brings fulfillment to your life? Is there a charitable cause you’d like to support? Is there a business you’d like to get into or expand? Is there something you’d like to do to help family members? Would you like to save or plan for your own long-term financial objectives? At this point, don’t filter your list - just make the list and prioritize it.
Number Three: List your debts and the cost of each, which is the interest rate. Whether to pay off those debts will be addressed in the next step.
Number Four: Meet with an advisor who is a Certified Financial Planner. A CFP® has earned that designation through years of experience and education. They are legally bound to act as a fiduciary, which means they must put your best interests ahead of their own. A good financial advisor can help you consider all of your options - the pros and cons of each and help you make sound financial decisions about how to use your money.
Number Five: Consider taxes in your overall plan. Ignoring the effect of taxes can reduce your inheritance substantially. Making sound tax decisions will maximize what you can do with your assets.
Remember that lottery winner from Step #1 - acting too quickly without a plan can result in going through the assets much quicker than you can imagine.