Handling an Inheritance: Investment Management Solutions

By Teresa Conley | March 10, 2018

"I've been left an inheritance. What should I do now?" Our wealth advisors often field inheritance-related queries. We generally tell them to take some time and consider the wealth strategies that will maximize their good fortune.  

Teresa Conley is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyBefore you start spending, it's essential to first revisit your comprehensive financial plan and consider how your windfall will best help you meet your financial goals. While it's fine to renovate the master bath or take that cruise, it's also important take a look at your long-term financial plan and determine the wealth planning strategies that will help you accomplish your goals. 

Wealth Management Solutions and Your Inheritance

Many wealth advisors suggest waiting at least three to six months after receiving an inheritance before making any major decisions. (To avoid losing out on interest during your cooling off period, consider investing the funds in a money-market account or a short tem CD.) Whatever you do, don't make any rash decisions based on emotion, such as handing in a resignation at your job or buying that new Ferrari you've always dreamed of.Instead, take a deep breath and make an appointment with a trusted wealth advisor to determine how your windfall will fit into your comprehensive financial plan. Your goal should be to maximize the inheritance and put it to work for you, helping you achieve your financial goals. 

And speaking of your goals, now is a great time to list them all. Once you've created your list of financial goals, prioritize them before completing a cash-flow analysis. This will allow you to see how much money it'll take to meet your short-term financial needs as well as your long-term financial goals. The answers to these questions will help you decide where to direct the funds. 

Teresa Conley is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyYour Comprehensive Financial Plan: Where does an Inheritance Fit In?

It's recommended that you use some of an inheritance to establish an emergency fund. Putting a minimum of three to six months worth of living expenses in an account that you can access in case of an emergency is an important part of having financial peace of mind. You may want to consider fully funding your emergency account even before paying down debt, as the next emergency without a fund will likely go on the credit card... leading to more debt. 

Speaking of debt, your next priority should be paying down outstanding debt, such as student loans and credit card debt. Focus on debt with monthly payments that are mostly (or completely) going to interest and pay those down first. Next, compare your debt's interest rates, such as that on your mortgage loan, to an expected return on investment. As a general rule, debt with interest rates over 5 percent should be paid down first. However, if you've got a low-rate mortgage, a long time left before retirement and good employment prospects, it may make more financial sense to invest, rather than pay off debt.

Now, consider funding your retirement accounts. If you haven't yet been able to contribute the max to an employer-funded 401(k) or an IRA, now's the time to start.

Finally, have some fun! You may want to consider taking 5 to 10 percent of the inheritance and engaging in a bit of discretionary shopping. If you list this in your goals, you can take the time to determine whether it's financially feasible. Remember, the goal isn't to change your lifestyle completely, but rather to maximize the windfall you inherit.  Work with your trusted wealth advisor to determine the right choices for your unique situation.



Posted in Financial Planning, Investment Guidance