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Make the Most of Your Inheritance: How to Avoid Common Inheritance Mistakes

Receiving an inheritance is a profound event that can impact you and the legacy you hope to leave behind. The decisions you make surrounding what to do with an inheritance can shape your and your family’s financial future, but it can also be overwhelming when you’re dealing with the grief and emotions of the moment. 

It’s important to approach inheritance planning with careful consideration so you can make the most of the gift you’ve been given. Creating a thoughtful plan for the money you receive can pave the way for future financial security and well-being, and help you avoid these five common inheritance mistakes:

  1. Making immediate impulsive decisions
  2. Misunderstanding (or ignoring) the tax implications
  3. Failing to assess your overall financial picture
  4. Overlooking the emotions involved
  5. Neglecting professional guidance

1. Making Immediate Impulsive Decisions

When you receive an inheritance, it can be tempting to spend it on large purchases before doing any other planning. After all, it’s money you didn’t have before, so why not?

However, it’s important to pause before you make any major financial moves. Impulsive spending can quickly derail the opportunities your inheritance can offer in your long-term financial planning. Spending mindlessly can also risk wasting your inheritance that could otherwise be used in more meaningful ways. 

Before you begin spending your inheritance, give yourself some time to get an inheritance plan in place.

2. Failing to Assess Your Overall Financial Picture

How does your inheritance shift your financial plan and reshape your overall financial picture? Before you make any decisions on what to do with your inheritance, assess your current financial circumstances. If you strike a balance between your inherited assets and your financial obligations, you can approach inheritance planning more holistically and sustainably.

Take time to think about your financial situation, your objectives, and how your inheritance can help you achieve your short-term and long-term goals. Stay mindful of how the money fits into your overall financial plan, whether it be boosting your savings, paying off debts, funding your children’s higher education accounts, or adding to your investment portfolio and retirement accounts. You may find that you can spend a little now, and still save a lot for later.

3. Misunderstanding (or Ignoring) the Tax Implications

The tax burden from an inheritance can have a significant impact on the money you receive and may differ depending on the types of assets in your inheritance. Investments, real estate, retirement accounts, and life insurance each have their own unique tax considerations. Your inheritance may be subject to federal estate taxes, and some states may also impose their own inheritance tax. Make sure you understand your tax liability before you begin using your inheritance money, as the tax consequences can be substantial.

Tax laws are constantly changing and can be complex to navigate, but you need to know your tax implications for effective inheritance planning. A financial advisor or tax professional can help guide you through the tax liabilities you may be subject to, and help you implement strategies to minimize your tax burden and maximize the overall value of your inheritance.

4. Overlooking the Emotions Involved 

It’s important to recognize the emotions tied to receiving an inheritance — not only your own but those your family may be experiencing as well. Talk openly with family members who may be affected by the inheritance you received, and give them time to process. Communicate with them to preserve your family dynamics and prevent any potential conflicts that may develop from misunderstandings. 

Give yourself time with your own emotions as well. You may feel guilty receiving an inheritance and spending it, as it may feel like a connection to your loved one who has passed. Or you may feel a responsibility to use the money in a specific way that your loved one would have approved of.

Consider doing something to honor your loved one, and dedicating a portion of your inheritance to celebrate their life. Perhaps you can donate to their favorite charity, buy something sentimental or meaningful, or take a trip to somewhere they love or have always wanted to visit.

5. Neglecting Professional Guidance

You may want to manage your inheritance on your own, but having a trusted professional in your corner can make the process go more smoothly.  A professional can offer valuable insight you may miss out on if you choose to oversee your inheritance alone, as well as help you make informed decisions on what to do with your inheritance. 

An estate attorney can help you look through any legal documentation, such as a will or trust, so you fully understand the terms of your inheritance and your rights. A tax professional can help you plan for the tax implications of your inherited assets. And a financial advisor can create a comprehensive plan to use your inheritance to reach your financial goals.

The larger the inheritance, the more beneficial it may be to seek the guidance of a professional. Their knowledge and experience can guide you through the intricacies of inheritance planning and help address any challenges so you can build a foundation for long-term financial prosperity.

Partner with Legacy Planning to Manage Your Inheritance

When you receive an inheritance, take a moment to make a plan before you act. Careful inheritance planning can enable you to not only safeguard this financial gift but also pave the way for its lasting impact on your life and the lives of those around you. With the guidance of a professional, you can make informed decisions on what to do with your inheritance that will help you protect and grow your wealth through the years.

At Legacy Planning, we have the necessary experience to guide you on your inheritance journey. We’ll work together with you to develop a customized financial and investment plan that aligns with your needs and thoughtfully incorporates your inherited assets. We’ll help you create an inheritance strategy that will enable you to move closer to achieving your goals and make the most of the gift you’ve been given.

To see if we can help you with your inheritance planning, click here to schedule a conversation today.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.


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