Today we’re tackling a topic that’s often emotionally charged and financially complex. What are the seven steps you can take when you find yourself inheriting money? This can be the most difficult of times, often involving the loss of a loved one. So let’s navigate this journey with empathy and financial wisdom. But first, let me introduce myself. My name is Warren Berger and I’m the owner of Luminary Financial Advisors located in Cocoa Beach, Florida, and serving people across the country. We help people create and implement tax efficient retirement plans. So what are the seven steps to take when first receiving your inheritance? First off, let’s talk about the importance of taking your time. When you inherit money, it’s easy to feel pressure to make quick financial decisions. But remember, emotional decisions are rarely good financial decisions. You usually have a window to decide what to do. Sometimes up to a year or more, depending on the asset, use this time to grieve, to reflect, and to consult with family members.
It’s okay to park the money in a low risk, easily accessible account while you figure things out. Once you’re ready, the second step is to assemble a team of professionals. This isn’t a journey you have to take a loan. A financial advisor can help you understand your options and tailor a plan to your needs. An accountant can guide you through the tax implications, which can be quite complex, and an estate attorney can help you navigate any legal intricacies. This team can be invaluable in helping you make informed decisions. Number three, assess your financial standing and goals with your team in place. Assess your current financial standing, look at your debts, your savings, your investment accounts, and your retirement funds. What are your financial goals? Maybe you’re looking to retire early or perhaps you want to pay for your grandchildren’s education. Knowing where you stand and where you want to go will guide the next steps.
For our fourth step, let’s talk about immediate financial planning initiatives. If you have high interest debts like credit card balances, consider paying those off first. Eliminating debt can provide a guaranteed return on your money. Something very few investments can promise. Also, if you haven’t already created an emergency fund covering at least six months of expenses, this fund should be easily accessible like in a savings account so you can get to it quickly in case of an unexpected life event. Number five, invest wisely with debts paid and emergency fund in place. It’s time to invest. Diversification is key here. Depending on your risk tolerance and time horizon, you might consider a mix of stocks, bonds, and perhaps some real estate. If you’re closer to retirement, you might lean more conservatively, but if you have more time, you might take on a bit more risk for the potential of higher returns. This is where leaning on a financial advisor can set you up for success.
Number six, consider the tax implications. Taxes on inheritances can be tricky. While most people know about estate taxes, which are paid by the estate itself before distribution, there are other taxes to consider. For example, if you inherit an IRA, you may have to take required minimum distributions or RMDs and empty that account within 10 years, which are taxable. If you hold and then sell inherited assets like stocks or property, you could incur capital gains taxes. It’s essential to consult with a tax professional and financial advisor to understand these nuances and plan accordingly. And finally, let’s talk about your legacy. This isn’t just about what you leave behind, it’s about how you use the money to make a meaningful impact. Now, whether that’s setting up a scholarship fund, donating to a cause close to your heart, or simply ensuring that you and your loved ones have a secure and comfortable future, your legacy is a way to extend the positive impact of your inheritance.
I hope this has been helpful. If you’d like to get some help with your personal financial situation, I have a link to my personal calendar below. Or you can go to luminary financial advisors.com to set up a complimentary call with me. Whether or not we decide to work together, I’ll always make sure that you get pointed in the right direction. I also have links below to some checklists and flowcharts to help you on your financial journey. And finally, check out the link to our Facebook group called 10 Years to Retirement, where we put out tons of education for people about to head into their retirement. Thanks for watching, and I’ll see you next time.
