According to a survey conducted by the Federal Reserve, people inherit an average of $46,200 during their lifetime. For many, it can be overwhelming to unexpectedly receive a large sum of money, especially when mourning the loss of a family member or friend.
It is important for us to take time to grieve during this process. If not, grief can negatively impact your ability to make practical financial decisions. By taking the time to create a thoughtful plan, you can be more strategic with your inheritance and leverage it in a meaningful and responsible way.
Understand Your Inheritance
Before making any significant decisions, take time to understand your inheritance. This means finding out what assets, accounts, or properties are included, along with the total value.
Discover where is the inheritance coming from. Are you receiving funds from a trust or an estate? Do you need to call an insurance company to make a claim for a life insurance policy that you’re the beneficiary of?
We recommend working with an attorney to review all associated legal documents you may acquire while receiving your inheritance.
Assess Your Current Financial Situation
Once you know what you are inheriting, think about how it can make a big impact on your financial well-being.
If you have any high-interest debt like personal loans or credit cards, you may want to use your new funds to pay off these bills. Or you can consider investing the inheritance instead if this choice aligns better with your long-term financial plans.
Emergency Fund Planning
Hypothetically speaking, you lose your job tomorrow – do you have enough savings to cover your costs of living for the foreseeable future? Having dedicated funds for emergency expenses or situations is critical to protecting your financial well-being.
Using your inheritance to stock your emergency fund allows you to avoid withdrawing from your 401(k) or cashing out investments. It is recommended to have at least six months worth of expenses available in your emergency fund.
Charitable Giving
Charitable giving is an extremely common method of putting your inheritance to good use. This is especially true if you are struggling with feelings of guilt surrounding your inheritance and want a portion of it to go to a meaningful cause.
If you don’t already have a charity in mind to support, consider giving to an organization that meant a lot to your lost loved one.
Plus, charitable giving also has its financial benefits. I encourage you to reach out to MFP if you are interested in establishing a donor-advised fund or charitable trust.
Consider Your Family
Throughout this process, you likely have had time to think about your own legacy after you are gone. Based on your own experience, take the time to think about where you want your money to go and build a comprehensive estate plan.
This includes updating your will, trusts, beneficiaries, insurance policies, power of attorney, and all other important estate documents.
Questions?
If you have recently received an inheritance, or are looking to refine your estate planning, reach out to us today at [email protected] or 301.990.9170.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Montgomery Financial Partners are not affiliated.
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