Ways to Prepare for Receiving an Inheritance

By Charles O. Posnecker IV, CFA, CFP®, CTFA | Published: May 2021

An estimated $60 trillion is expected to be transferred from baby boomers to their heirs in the coming years. The passing of a loved one, sometimes unexpectedly, can be especially stressful. Receiving an inheritance can further compound the emotional strain, particularly if you are settling the estate, dealing with creditors, and organizing the assets. You are certainly thankful for what you are receiving, yet still in the grieving process. This would be a natural time to speak with a financial advisor and discuss matters further. An advisor can provide an objective opinion on pitfalls to avoid and suggestions for planning.

Here are five points to keep in mind when receiving an inheritance:

Take your time
Sometimes it is hard to think clearly while grieving the loss of a loved one. Try to avoid making any drastic spending decisions right away and give yourself time to process the loss. You may think you can quit your job or buy a home, but it’s best to wait and come up with a financial plan.

Understand what you’re inheriting
Receiving a trust account versus a retirement account can have very different implications. Trust accounts may have specific language for principal and income, taxable accounts may require a “step up” in cost basis, and IRAs can have a variety of distribution options depending on your relationship to the decedent. Inheriting real estate can also be complicated. An advisor that understands the nuances of each can help you to navigate the different types of investment products out there.

Be careful who you tell
If it is an especially large windfall, be sure to keep it private. There are many unfortunate stories of newly rich people who struggle with friends and family suddenly asking for gifts or loans. You may want to support them, but do not be afraid to say “no.”

Take a fresh look at your current financial plan
With new funds available, you may be much closer to your retirement and savings goals. Now you may be able to boost your savings a bit more or pay off high-interest debt. Reassess if you need to update any beneficiaries on your current accounts. Ensure that your current asset mix is not suddenly in need of rebalancing. And if you do not yet have a plan, this would be a perfect time to put one in place.

Enjoy yourself
Do not feel beholden to what you received. Once you have addressed your financial needs, it is okay to spend some of your inheritance. Maybe even take a trip to your loved one’s favorite vacation spot in their honor, pass on some family traditions to a younger generation, or do something you both enjoyed!

Receiving an inheritance during a traumatic time can make the situation all the more hectic. Meeting with a financial advisor can take some of the worry off of your shoulders by steering you in the right direction.

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About the Author – Charles O. Posnecker IV, CFA, CFP^®, CTFA
Chuck Posnecker joined Cypress Capital Management in 2017 after working for Christiana Trust, a division of WSFS Bank, for 12 years in their personal trust and investment groups. He graduated from the University of Nevada, Las Vegas, where he received his BSBA in International Business (2002) and MBA-Finance concentration (2005). Chuck is also a graduate of the Pennsylvania Bankers Association School of Trust, Investments & Relationship Management, where he completed a three-year program focused on various aspects of trust administration and investments. Chuck obtained his Certified Trust & Financial Advisor designation in 2011, his Chartered Financial Analyst designation in 2016 and earned the CFP^® certification in 2019.

 

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