How to Manage an Unexpected Inheritance

What would you do with an unexpected windfall inheritance? Receiving an unexpected inheritance or windfall can be a pleasant surprise. However, research has found 90 percent of inheritance is often depleted by the third generation. Without proper financial planning and guidance, unexpected inheritances won’t last as long as you think. Here are some basic recommendations when receiving an unexpected inheritance or windfall:

  • Take control. Before you spend any money, make sure your financial house is in order. Start by preparing a budget, which is the critical starting point for making a solid financial plan for how you’ll use the money.
  • Start saving. If an inheritance happens, you will already have savings habits in place and account relationships set up to receive the money. Even if you’ve saved enough for retirement, increasing your retirement savings will boost the amount of income you’ll have to live on when you retire. 
  • Don’t quit your job. While the temptation is strong to quit your job, your inheritance will last a lot longer if you continue working. And once you quit your job, you’ll stop earning income that contributes to our Social Security retirement benefits – which you may need if your investments turn sour.
  • Assemble a trusted advisory team. If you are overwhelmed by putting together your financial goals and plans, you may decide to assemble a trusted advisory team. Working with one or more of these financial professionals can help with wealth-preservation strategies so that you can meet your goals and plan for the future. To help you get the most from your financial good fortune, consider a certified financial planner, certified public accountant, certified credit counselor, and an attorney involved in trust or estate matters for your financial team. Before working with any financial professional, be sure to check their credentials.
  • Be discreet. It’s not unusual for parents to leave different amounts to their children, so revealing the amount you’ve inherited could lead to family discord. Money can change people for better or worse. The best approach to sudden money is to go quietly and immediately into the planning phase – don’t make announcements on social media and involve only key loved ones who need to be part of the process.
  • Be true to your legacy. Before blowing your inheritance, ask yourself, “If Mom and Dad or Grandpa or Grandma were next to me right now, what would they want me to do with their money?”
  • Take it slow. Finally, don’t go hog-wild and make any impulse decisions or major purchases until you’ve consulted with trusted advisors who will help you make sound decisions about your financial future.

This information is intended to provide general information and should not be considered legal, tax or investment advice. It’s always a good idea to consult with a professional about your individual financial situation.