A substantial inheritance can be both a blessing and a curse: a blessing because the money may come in handy eventually, and a curse because it imposes a specific obligation on the recipient to utilize it properly rather than squander it. 

If mismanaged, your inheritance may leave your financial situation unchanged—or even worse, if it causes you to incur more debt than you can pay.

That is why, especially given the emotional challenges of losing someone close to you, it is critical to behave deliberately and strategically when inheriting a portion or all of a loved one’s estate.

A federally insured bank or credit union account might be an excellent, safe place to keep your money while making decisions.

In most cases, you will not have to pay taxes on your money. Still, other inherited assets, such as securities, retirement accounts, or real estate may have tax ramifications.

Things to Do: 

  • First, Don’t Expect to Get It

If you’re expecting a huge inheritance but haven’t yet received it, don’t count on it. Things may and will change. Your family or another benefactor may incur substantial medical or nursing care expenditures at the end of their life.

According to the Federal Reserve, the typical inheritance today is around $46,200—a sum many families may find handy but hardly life-changing.

When the time comes, the heirs to the baby boomers’ fortune may also be disappointed. This is a strong incentive for younger generations to get on with their financial lives and invest as much as possible for the future.

  • Put your money in a high-yield savings account to earn more money.

Allow yourself time to ponder and defer financial decisions until you’ve had time to comprehend your loss and talk with a reputable financial advisor to avoid acting on impulse. 

Until then, consider depositing the money in a high-yield savings account, which will earn you more than a typical savings account. You can put your inheritance in savings until you figure out what you want to do with it in the long run; you can also utilize it to save for short-term goals like buying a house.

  • Hire the right people 

Although not all inheritances come in the form of a check (more on that later), the idea remains that being careful is preferable to being careless. It’s a good idea to hire a few different professionals to assist you in sorting out the financial consequences of your inheritance. 

An inheritance might have a lot of tax ramifications that you might not have considered. You may owe inheritance or estate tax, which will be deducted from the total amount of the inheritance, depending on how it was structured. It’s a good idea to hire an expert to make sure you don’t overlook anything or pay more tax than you have to.

To navigate the transfer of assets, you may need the assistance of an attorney. 

  • Make a 529 college savings plan or an ESA.

Education comes at a high cost. Consider putting money into a college savings plan, such as a 529 plan or an education savings account, if you have children who have recently received an inheritance gift (ESA).

ESA plans can help with eligible expenses like elementary, secondary, and post-secondary school tuition, as well as vocational training.

  • Getting Out of Debt

Paying down debts, especially high-interest debt like credit cards or school loans, is an excellent way to put inherited money to work. Debt with a lower interest rate, such as a home mortgage if you have one, is more of a personal decision.

  • Create an Emergency Fund

The next step in your financial plan should be to set up an emergency fund. An emergency fund is money set away in a savings or money market account solely for unexpected expenses, such as a significant medical emergency, a house repair, or a job loss or disability that prevents you from earning money. It should be enough to cover three to twelve months’ worth of living expenditures or more.

  • Invest the Rest

With the assistance of a financial advisor. In terms of investing concepts, inherited money is no different than money you’ve earned for yourself. Unless you choose to separate the inheritance, think about it as part of your overall portfolio. Aim to be well-diversified across various investments with varying degrees of risk.

  • Think about your retirement

One of your top priorities should be to protect your retirement by allocating enough assets to generate a stream of income you will not outlive. Setting aside assets for your retirement is critical so you can be assured that it’s safe and that you can use other finances for other goals and priorities.

Final Keynotes 

It can significantly impact your life if you receive a large inheritance and use it correctly. 

A federally insured bank or credit union would be an excellent place to put a significant cash inheritance, at least for the time being. Your money will not make much interest, but it will be safe until you decide what to do with it as long as you keep within the legal limitations.

It’s never too early to start thinking about your long-term objectives; a sizable inheritance can help you achieve many of them. Do you wish to purchase a home? Do you wish to retire sooner or in a more comfortable manner than you anticipated? Do you want to put money aside for your children or grandchildren to attend college? Do you wish to donate some of your newly acquired cash to a company or a charity? Now is the moment to consider how your inherited wealth can help you achieve your objectives faster.


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