Skip to Main Navigation Skip to Main Content
Our Family of Companies
western & southern financial group
western & southern life
columbus life insurance company
eagle realty group
fort washington investment advisors
gerber life insurance
integrity life insurance company
lafayette life insurance company
national integrity life insurance company
touchstone investments
western & southern financial group distributors

What to Do With an Inheritance: A 6-Step Checklist

Estate Planning
Share:
A multi-generational family in the woods after discussing what to do with an inheritance

When a loved one leaves you an inheritance, one way to honor their memory could be to put that money to good use. But without a clear plan for what to do with an inheritance, that money may not go as far as you'd hoped. If you need help getting started, here's a checklist to consider.

1. Take Your Time

You may not want to rush to figure out what to do with an inheritance right when you receive it. It's important to deal with the emotions of your loss, which can take some time, so you may want to wait before investing or spending the money. Consider keeping the money in liquid vehicles such as savings accounts for a short time until you feel ready to make financial decisions.

2. Consider Your Financial Goals

When you're ready, think about what your most important financial goals were before you received the inheritance. They may help guide your decisions about how to use the new windfall. Let's say, for example, that your goals in order of priority were:

  1. Pay off credit cards and student loans.
  2. Build your emergency fund.
  3. Contribute to your retirement plan.
  4. Pay off your mortgage.

With this list in mind, you can start working through each goal. If you have a smaller inheritance, you may have just enough to pay off your high-interest debt with a little leftover for your emergency fund. With a larger six-figure windfall, you may be able to move to the other larger goals.

The key is to try to stick to your financial plan. When people receive a sudden rush of money, they can treat it differently than regular income. For example, it might be tempting to go buy a second home or car, even though your existing financial plan dictates that you should concentrate on paying off debt first.

3. Plan Investments

If you'd like to invest part of your inheritance, there are a number of options you could consider, and what's right for you will depend on your personal situation. For instance, you could think about investing in stocks, bonds or mutual funds. It's important to remember, however, that these investment types do not guarantee growth, and may instead lose value over time. You could also think about moving some of the inheritance into an annuity, which will turn the proceeds into guaranteed payments that can last for the rest of your life.

Consider being cautious about investments that cost more than the size of the inheritance, such as buying a rental property. You may not want to make a partial down payment on a second home and then realize later you can't keep up with the mortgage payments. You might consider investments in real estate if you receive a significantly large inheritance that could allow you to pay off the entire purchase, or most of it, all at once.

4. Keep Some for Spending

There's nothing wrong with using part of your inheritance on something fun like a family vacation or a new car. The key is to consider picking a percentage of the money to set aside for personal spending that will allow you to still make progress toward your long-term goals.

You can think of this allocation as spending toward your personal goals — seeing more of the country, embracing entertainment and culture, etc. — which are separate from (and probably secondary to) your greater financial goals. Don't be afraid to spend some on yourself, but consider making a plan for how much that will be and try to stick to it.

5. Prepare Your Own Estate Plan

Receiving an inheritance could be your chance to prepare your legacy for the next generation of your family. For instance, you could use some of the proceeds to purchase life insurance or put the inherited money in a trust.

Estate planning can also be important if you inherited enough that you owed inheritance taxes. If you're able to continue growing that money, your heirs could end up in the same situation. By devising an estate plan that prepares for these taxes, you may be able to help your heirs receive their future inheritance as smoothly as possible.

6. Meet With a Financial Professional

As you go over all these steps, it could be a good time to meet with a financial professional who specializes in planning inheritances. They can go over your ideas with you and help you make appropriate investment decisions.

When your loved one put money aside for an inheritance, they likely did it to help you and your family live a better life. By following these steps for your financial road map, you could help to make their dream a reality.

Related Articles

IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.