Inheriting wealth is a complex and often delicate situation. It can be a life-changing event that brings both excitement and anxiety. Whether the inheritance is a small sum of money or an entire estate, it is essential to have a plan in place and to manage the situation well.
Here are some tips on what to do when inheriting wealth.
Don’t rush. Think it through.
The first step is to stay calm and avoid making quick decisions. You may still be grieving, others may be pushing you to make decisions, or you may be feeling a rush to spend. But it is wise to treat this influx of wealth as an investment and carefully consider how you want to use the monetary infusion.
Get professional help.
Once you have taken the right amount of time to think, the next step is to research the inheritance. Talk to trusted advisors, such as attorneys and financial advisors, to ensure you understand all the legal and financial implications. An experienced professional team can help you determine how to structure your inheritance for estate planning purposes best, offer advice on tax planning, and make the most of your money now while aligning your current wishes and desires with your future dreams and goals.
Create a wealth preservation plan.
Next, creating a prudent spending and wealth preservation plan is essential. Determine your financial commitments and goals, then develop a plan to save and invest the inheritance to make it last. Working with a fiduciary financial planner can help you decide which investments are best and how much you should set money aside for emergencies, bucket list items, and retirement.
Consider taxes and liabilities.
If you serve as an executor, you should also carefully evaluate the estate to determine any liabilities that must be settled. This may include outstanding taxes, debts, or other claims against the estate. Hire an experienced lawyer to review the estate and help settle these debts. A financial planner or tax professional can also be helpful as you seek to minimize your own taxes and pass-through issues to your heirs. The SECURE ACT 2.0 has complicated things, so make sure you — and they — understand all the potential issues related to your situation.
Finally, determine what you want to do with the inheritance in the long term. What are your goals and objectives for using the money? Consider your objectives seriously and work with a financial planner to develop a plan to reach them. Sophisticated strategies may be available based on your overall wealth and financial situation.
Download the HCR Sudden Money guide.
Inheriting wealth can be a significant life event but can be managed successfully with proper planning. HCR’s free Sudden Wealth Guide provides additional tips and insights. Access it here: https://www.hcrwealth.com/inheritorsguide/
Shawn Landis, CFP®, is a senior financial advisor at HCR Wealth Advisors (https://www.hcrwealth.com/), an independent financial advisory firm based in Los Angeles that provides investment management, financial planning, and other financial services. Shawn’s area of expertise is focusing on comprehensive wealth management, analyzing business challenges and building infrastructures. He has substantial experience in providing tax and financial planning strategies, business consulting and investment advisory services for high net worth individuals. Visit the Insights section of the HCR website for additional wealth management ideas and information.