Losing a loved one can be a life-changing experience. The emotional toll that it takes on you will be a lot, and there’s going to be a long healing process involved. There are also potentially a lot of administrative tasks to complete; whether it’s arranging the funeral, cleaning up the house and things, and working through the Will. There could be a chance that you are left with part of that Will, and it could be a small or large inheritance. Quite often, receiving an inheritance can be overwhelming and can be easily misused. Let’s explore ways to be smart and honor the legacy of the person that left you part of the inheritance.

Be aware of what you are inheriting

After you’ve been informed that you have received an inheritance, the first thing you should do is to pay close attention to the details of what you are inheriting. Your loved one may have left you some assets under the Will. Typically, these assets can be categorized into three groups: real estate, a trust, or a retirement account. It is vital to know the specific details of the type of inheritance you are receiving, as this would determine how you would use it. Some inheritances will be more liquid (i.e. easily converted to cash) than others, some will have more specific instructions on how, and some might not make sense to cash out right now.

Plan before you spend

Your sudden financial gain may unleash your hidden spending desires, but you should make a plan before you go all out. Set up a budget or create a plan for what you would like to use your inheritance. If you have acquired real estate, you may want to consider your choices of either renting the property or selling it. 

With liquid assets, such as cash, you will have to consider the concepts of saving and spending. You may want to create an investment account, have an emergency source of money, or save for an event in the future- like your retirement or your child’s college fees. You may also want to use the funds to settle debts such as mortgages, or even the expenses of your probate lawyer. Going through a Will might incur legal costs. You may also want to donate to charity!

Basically take stock of your current financial situation and as best you can, make smart uses of the money. Consider it a gift, and use that gift to make a positive change in your life or others.

Be mindful of your taxes

Do not get so lost planning in what to do with your inheritance that you forget the taxes associated to it. The money you receive from your loved one may be subject to taxes, and you have to keep this in mind. The taxes that apply and the percentage of taxation would depend on your relationship with the deceased, the amount you inherited, and the state you live in. For example, an inheritance tax, a tax you pay on money or property you have inherited, is imposed in a few states.

Be sure to be aware of the taxes that apply to you to plan how you will spend your inheritance adequately.

Consult a financial advisor

With such a potentially life changing gift, it’s important not to squander it and use it wisely. If you realize you are not the best with money to begin with, it could be smart to hire a financial advisor or consult trusted family or friends. Your financial advisor would help you save your money, make profitable investments, and help you save for your future, such as saving for your retirement.

Acquiring an inheritance can make your financial situation change for the good. However, if not well managed, you might lose out on the opportunities it brings. Be sure to adopt smart tips such as these so that you can truly enjoy the benefits of having an inheritance.  

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