$1 million may sound like a blessing. But most people
who receive an inheritance experience confusion, anger,
sadness or some combination of the three, according to
the Financial Planning Association. If you are a
beneficiary grieving the loss of a loved one, here are
some simple steps to make sure that the emotional toll
does not end up a financial one as well.
a breather. Whether the amount is small or large,
chances are that your inheritance will be unexpected.
Emotions tend to run high. Avoid snap decisions. Rather
than quit your job or buy a new sports car, take a step
back and think about your goals.
assistance. A qualified financial professional can offer
sound guidance, especially if you are not used to
managing large sums of money. An advisor can help you
develop a clear understanding of how your inheritance
affects your current and future financial situation and
develop a plan of action.
the money. In the meantime, put your inheritance in a
safe place. Instead of depositing cash into your
personal checking account, consider putting the funds
into a money market deposit account or a certificate of
wary of taxes. The value of inheritances is generally
excluded from gross income. After that, calculating your
tax liability can be tricky. Say you inherit a portfolio
of diversified securities. Its value, known as its cost
basis, is equal to the fair market value of the assets
on the date of the decedent’s death. If that value
rises because of dividends, interest or appreciation,
you can be liable for capital gains taxes on the
increase if you sell. Seek out a tax advisor and
financial planner to help you make sense of your sudden
wisely. Remember that sports car? Put it on hold.
Perhaps the largest benefit you can receive from an
inheritance is to reduce your current debt. Pay off car
loans, student loans, credit card debt or a mortgage.
Consider using your inheritance to build a rainy day
fund for emergencies. Advisors usually recommend that
you have enough liquid assets on hand to cover three to
six months’ worth of living expenses.
about saving some money. Why not add to your retirement
account? For 2015, the contribution limits for a 401(k)
plan and an individual retirement account are $18,000
and $5,500, respectively. Higher contribution limits are
available for those over age 50.
taking these initiatives, you will have more time to
figure out the future and hopefully count on your
inheritance to pay dividends for years to come.