By Brian Bloxom, ChFEBCSM
There isn’t an experience more bittersweet than receiving an inheritance. On the one hand, you are being gifted money or assets that could change your financial situation or build a stronger safety net. On the other hand, you are likely still grieving and the inheritance serves as a reminder of your lost loved one.
Although you would expect most people to use their inheritance wisely to respect the legacy of their family member, that doesn’t always happen. Using your inherited money wisely is a great way to honor your lost loved one, so if you’re going through the process of accepting an inheritance or suspect you will soon, here are some things to keep in mind.
Take a Moment
Before making any decisions about the money, you need to process the loss of your loved one. Failing to deal with your grief can result in emotional spending that compromises the money you’ve just received. If you give yourself some time, you may become more sensitive to your loved one’s wishes or have the chance to clear your head of complex emotions.
If your loved one spent their life building and protecting their wealth, they probably hoped you’d do the same. Letting your inheritance sit for a minute can help you overcome the initial temptation to splurge on something like a fancy vacation or expensive new home. If it’s important to you to honor their legacy, don’t forget to take care of your own emotions to protect the wealth they’ve gifted to you.
Understand the Type of Inheritance You’ve Received
Common types of inheritances include:
- A trust account or cash
- A retirement account such as an IRA or 401(k)
- A house or other property
Knowing and understanding the types of inheritance you’ve received impacts how you access the funds, any taxes associated with it, and what your options are moving forward.
For example, if you inherit a home but don’t want to live in it, you may need to learn more about potential capital gains taxes before deciding to sell the property. If you find that a capital gains tax would be too costly, you might explore another option, such as renting out the house or living in it temporarily as you assess your situation.
Likewise, inheriting a retirement account comes with its own set of considerations, particularly if you inherit the retirement account from a non-spouse. Regardless of the inheritance you receive, it’s best to contact a tax-planning or financial professional who understands the intricacies of inheritance situations.
Take Stock of Your Financial Situation
Once you understand the type of inheritance you’ve received, you’re better equipped to align your plans for the inheritance with your other financial goals, such as:
- Contributing to your retirement account
- Paying down your mortgage
- Saving for your children’s college education
- Giving to a charity or foundation you care about
- Buying a vacation home or taking your family on vacation
Don’t Go it Alone
As with any major financial decision, consulting a professional is the most important step. Experienced and objective advice can help curb temptation and ensure you’re not misusing the inherited money, and as a financial professional, I can also help you optimize the inheritance to build a better financial future for the long run.
At Sentinel Wealth Partners, we want our clients to live confidently with their future in mind. Our goal is to align your most important priorities, such as your financial needs, family values, and charitable interests, with your financial resources in a way that is tailored specifically for you. If you want to partner with a financial planner who has your best interests in mind, reach out to us today by calling our office at 703-832-0164, sending an email to email@example.com, or using our online calendar.
Brian Bloxom is an Independent Financial Advisor, Chartered Federal Employee Benefits Consultant (ChFEBCSM), and Chartered Retirement Planning Counselor (CRPC) with 25 years of experience in financial advising. He founded Sentinel Wealth Partners to serve retirees, individuals approaching retirement, and individuals managing complex retirement plans such as company plans or federal benefits plans. His expertise and dedication to helping his clients achieve their goals make him a trusted resource that will help you feel confident in your customized retirement plan. Brian’s mission is to be available to his clients—all the time. He’s here to solve your problems, relieve your anxiety, and give you optimism for retirement. Because ultimately, your retirement should be about well-deserved enjoyment, and not about stress or anxiety. When he’s not working, you can find Brian spending time with his wife, Jessica, and their two sons, Spencer and Preston. He enjoys coaching soccer, serving in his community, golfing, and relaxing at his vacation home at Lake Anna, VA. To learn more about Brian, connect with him on LinkedIn.