Steps to take to prepare for receiving an inheritance.

You could inherit a significant sum and you’ll want to use it wisely.

You might be in line to receive an inheritance and might not be prepared for it. The loss of a loved one can be an emotional experience and managing an inheritance can be complex so we want to help simplify this process for you.

You could inherit a significant sum and you’ll want to use it wisely. The process of receiving an inheritance may seem overwhelming but having a plan in place and being prepared will help.

Working with SANDSTONE, the following steps can help you navigate the intricacies of managing an inheritance and establishing your own legacy.

how to manage an inheritance:

1. Stop and pause

Managing an inheritance can be difficult due to the array of emotions that are often at play, so it’s important to stop… and pause… before making any major financial decisions. When you receive the inheritance, take a step back and evaluate your options.

As a new heir you don’t need to act immediately on anything and can even enter in a decision-free zone for several months or even a year to think through next steps.

2. Talk to your financial team 

Inheriting money or other assets can begin an important new chapter in your financial life. There are many decisions to make and factors to consider, some of which you may not yet even be aware.

You may ask yourself questions such as the following:

  • What paperwork do you need to complete to transfer assets to your name?
  • What are the tax implications of the inheritance?
  • What, if any, legal documentation should you have in place prior to receiving your inheritance?

We can help you navigate these important decisions. Depending on the scope and sum of your inheritance, it may be beneficial to consult with your accountant, a tax professional and/or attorney who specializes in estate planning.

3. Take time to understand your new assets

An inheritance can arrive in many forms and it’s important to have a thorough understanding of what you inherited. Do you know if the assets you’ve inherited are liquid (e.g., cash) or fixed assets (e.g., real estate) or a combination?

Asset types could include art, rare books, bitcoin, stocks and bonds, cash endowments, businesses, or real estate. You’ll want to assess the elements, help calculate the estimated cost and value of assets, and determine if they’ll be available to you immediately or distributed over time.

4. Factor in tax implications

Taxes surrounding an inheritance can be complicated, and you may owe taxes on your new assets. If you’ve inherited a variety of asset types, several different tax treatments may come into play.

How you navigate the tax implications of an inheritance can have a huge impact on your finances. We can partner with your tax professional to determine ways to help protect your assets while adhering to tax laws.

5. Evaluate and set financial goals

Once you have a solid understanding on your inheritance, it’s a good time to revisit your overall financial goals. You’ll want to explore the options available to you to help achieve your most important goals.

For example, you could:

  • Pay off debt (depending on how low the interest rate is)
  • Invest in home improvements
  • Explore education opportunities
  • Strengthen and diversify your retirement savings
  • Create an emergency fund
  • Donate to a charity of your choice
  • Leave a legacy in the form of a family trust or a foundation
  • Check things off your bucket list

Not sure what goals to set? SANDSTONE will help you consider the investment strategies and other tools specific to your goals.

6. Update your estate plan

After receiving an inheritance, you may want to set up your own financial legacy by creating an estate plan or updating one you already have in place.

One of the most important things to do is to establish your beneficiary and update your will. We suggest you work with your entire financial team to take steps which can help minimize estate taxes for your beneficiaries.

avoid potential pitfalls:

A lot of emotions come into play when receiving an inheritance and your emotions can sway what you do with it.

You’ll want to avoid potential pitfalls including:

  • Spending it all – losing an inheritance is easy because saying no is hard
  • Paying off all low interest debt – you could further grow your wealth through investment strategies with higher interest rates
  • Unnecessary co-mingling – you may want to hold onto your inheritance for a bit, rather than immediately putting it all into a joint account with a spouse/partner
  • Concentrated investments – as the saying goes don’t put all your eggs into one basket

Circling back to the first step, stop and pause, you’ll also want to ensure you’re not rushing any decisions and you take your time to determine what’s important.

Dwight D. Eisenhower, who was quoting Dr. J. Roscoe Miller, president of Northwestern University, said: "I have two kinds of problems: the urgent and the important. The urgent are not important, and the important are never urgent.”

Bottom Line

When preparing for and receiving an inheritance, take advantage of the professional guidance available to you from SANDSTONE. We will review your complete financial picture, understand your goals, and guide you through critical decision points so you can feel more confident about managing your inheritance.

You may also be in a position where you are planning on leaving an inheritance and we can help you plan for that as well.

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