A large inheritance can be both a blessing and a burden because the money may come in handy in the future and because the recipient is expected to use it wisely rather than throw it away. Anyone who anticipates receiving a sizable inheritance can use this step-by-step manual to consider a significant legacy by an estate lawyer.
Don’t Assume You’ll Get It First off with large inheritance.
If you’re hoping to inherit a sum of money but haven’t yet done so, don’t count on it. Things could alter. At the end of their lives, your relative or another beneficiary could raise significant medical or nursing home expenses. They might opt to donate everything to a good cause. On the other hand, they might fall victim to a con artist’s ruse.
According to a 2011 study by the Bureau of Labor Statistics, the long-anticipated inheritance boom as the post-World War II generation passed on their wealth to the baby boomer generation never happened. Only 21% of households reported receiving an inheritance or gift of assets between 1989 and 2007.
According to the Federal Reserve, the average inheritance today is about $46,200, which many families may find helpful but is not necessarily a game-changer.
Step By Step to consider large inheritance by the estate planning lawyer
Do not feel pressured to make decisions immediately if you inherit a sum of money. Grief management is complex, and adding financial pressure only makes things more difficult.
Depending on what form (or forms) your inheritance takes, you should decide what to do first. For instance, if you inherit money, you may want to keep it in a secure location for a while. The best option would be a bank or credit union account that is federally insured. Up to $250,000 per depositor per financial institution is guaranteed for these accounts. You can make arrangements for more excellent coverage by establishing several different types of accounts. For instance, if you open a joint statement and a single charge, your coverage will total $750,000.
You can distribute your inheritance among several financial institutions if it exceeds the insurance limit of one.
To get everything adequately transferred into your name, you’ll need an executor of state if you receive other types of assets, such as securities, retirement accounts, real estate, or a stake in a company.
Also, remember that getting what is owed to you can take time, even if you are in a hurry. Probate can take weeks to years, depending on the complexity of the estate and whether anyone contests the will. Probate is the legal procedure by which an estate’s assets are distributed under the direction of a court. It takes about nine months on average.
Ask for Help If You Need It from an estate lawyer.
Depending on the amount of money at stake and your level of comfort with handling finances, you might want to spend money on expert advice. A financial planner can assist you in deciding how to manage your money most effectively in the short term and create a long-term financial strategy that considers all of your assets and debts.
In this situation, a financial planner who charges you for their services rather than receiving commissions for directing you toward specific investments would be a good choice. That arrangement aims to eliminate any potential conflicts of interest for the planner.
A planner can also assist you in determining how to handle any inherited non-cash assets. For instance, if you inherited securities, you’ll need to choose whether to keep them in your portfolio or sell them and buy new ones.
Clear your debts with a large inheritance
Paying off debt, an exceptionally high-interest debt like credit card or student loan debt, is a good use of inherited funds. Debt with a lower interest rate, such as your home mortgage, is more discretionary. By all means, use the inheritance to pay off your mortgage if doing so would make you feel more secure. It’s also a reasonable—if the riskier—option to invest the money to earn a higher return than your mortgage is currently costing you.
Invest the rest from the large inheritance that the estate lawyer considers
You can choose what to do with the money that is still safely tucked away in your bank or credit union accounts once your debts have been settled. But, again, take your time.
You should probably start investing the money with the aid of a financial planner or on your own if you prefer. In terms of investing principles, the money you’ve inherited is no different from the money you’ve earned for yourself. Consider the inheritance in the context of your entire portfolio unless you want to keep it separate for sentimental or other reasons. Aim to properly diversify your investments across a range of vehicles with varying degrees of risk. And instead of investing all at once, think about doing it over time. By using methods like dollar-cost averaging or value averaging.
Additionally, you will increase your contributions to your retirement or college savings plan accounts because of inheritance. You can’t put inherited money in a retirement account because it isn’t technically earned income. But you can use it to free up some of your earned income.
We’ll spare you the finger-pointing if you use some of your inheritance money to take care of yourself. Now the money is yours. But it’s essential to remember that when something is gone, it’s gone. If you make wise investments, you can keep them for a long time. You might be able to one day leave it to your heirs.