Money Matters

What to do When You Receive an Inheritance

23 Nov 2021 by: Kim Benson  , ,

As we go through life, finances can become more complicated. We like to be good stewards of our hard-earned money as we strive to save for our future, but that can be hard in high cost of living areas like San Diego. While we sometimes dream of the extravagant things we would do if we came across a windfall like winning the lottery, oftentimes we would not know what to do if that was to happen. There are important considerations before spending any type of windfall frivolously, as we often imagine in our wildest dreams.  

When we think of our families, it is difficult to think about how death is part of life, and we will eventually lose loved ones along the way. We know there is likely going to be added stress when making decisions while working through our grief. Here are some tips to help you navigate the decisions that come along with a windfall associated with receiving an inheritance. 

Understand both sides of money

There are two sides of money: the technical side and the personal side. The technical side deals with the “how-to’s” such as how to invest, understanding tax implications, how to set up an estate plan, etc. The personal side connects with your emotions, including fulfilling hopes and dreams and providing a sense of well-being. Both sides are equally important and complex but it’s the personal side, that “gut feeling,” which really drives decision-making. Understanding your personal side when making decisions will help you make the best ones for you and your family. 

Take it slow

When major decisions are required, you want to ensure you have a sound frame of mind. Losing someone is an emotional experience and it’s okay if you need more time to do the right thing with the money you are inheriting. The last thing you would want to do is to make a decision you would later regret, even worse, one that is punitive and irreversible. Now is not the time to make quick impulse decisions.

Honor their legacy

Remember where this money came from and what your loved one would have wanted. As Certified Financial PlannerTM professionals, we think everyone should have an estate plan or instructions for their loved ones to help guide them in situations like this, but we also realize not everyone will have one. If you don’t have a written record of what your loved one would have wanted, think back to conversations you’ve had and speak to other trusted loved ones who were close to them, which may serve as a starting point and guide you in a certain direction. 

Seek help

If you are receiving an inheritance, it’s important to know who should be involved. As we say at CCMI, Money Doesn’t Come with InstructionsSM , so it’s best to get a team in place to help you. Depending on the type of inheritance or the amount you receive, you may need to seek help from several professionals in addition to a trusted financial advisor. This can include an estate planning attorney, a CPA or tax advisor, an insurance agent, a real estate agent, etc. and CCMI can help provide recommendations as needed. As we are fee-only, we do not receive any compensation for referrals to other professionals who we know do good work.  

Various rules will apply depending on the type of inheritance. For example, if you are inheriting a portion of a qualified retirement account like an IRA, it is subject to certain distribution rules that a brokerage account is not. Having an advisor do the heavy lifting in these areas and remove the guesswork can help reduce stress by allowing you to focus your energy in other areas. Furthermore, making a mistake can result in penalties that can be avoided with the help of a team of advisors.

Put a plan in place

This is where you’ll decide how to put the money to use by either saving it, using it to pay down debt, perhaps gifting it, or even spending it. Putting a plan together is where the technical side of money comes in and CCMI can help you plan your financial future. If you are currently a client of CCMI, we are already familiar with your financial situation and we can work with you to see how an inheritance fits into your overall financial picture. 

At CCMI, we have advisors who are specifically skilled and trained to address the technical and personal sides of money when dealing with life events such as losing a loved one and receiving an inheritance. Seeking a trusted advisor who has this specialized training can help reduce complexity, boost confidence in your decisions, and support timely action, including knowing what can wait, which will ultimately reduce regret and self-blame. We are passionate about empowering you and guiding you through your decisions and we can walk together with you as you navigate these complex situations. Give our advisors a call if we can help you plan for an inheritance you have received.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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With a strong technical background in corporate financial planning and analysis, a CPA and CERTIFIED FINANCIAL PLANNER™ professional, Kim also specializes in the personal side of financial planning as a Certified Financial Transitionist®. As principal and owner, Kim’s unique skill set helps her relate to clients’ evolving needs and provide clarity around significant life decisions. Kim also specializes in working with current, former and retired employees of Raytheon Technologies (RTX).

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