How to Make Your Inheritance Last: Best Ways To Invest

Most people believe that receiving a large inheritance from a loved one would be life-changing. However, there’s a significant group of people who see little to no change.

At least one study found that about one-third of Americans who had received an inheritance eventually experienced a decrease or no change in their wealth after receiving the inheritance,  in other words, they most likely spent everything they received.

For baby boomers who received an inheritance of $100,000 or more, nearly one in five spent it all. If you are preparing to receive an inheritance, there are several steps you can take to ensure that your funds will last longer than a few years.

Do Not Make Any Hasty Decisions

Once you receive your money, do not make any hasty decisions about what to do with it. While you are crafting your long-term financial plan, consider taking some of the following actions.

First, park the funds in a safe place such as a savings account, money market account, or certificate of deposit. Keep in mind that the FDIC only insures these types of accounts up to $250,000 per depositor, per insured bank, for each account ownership type.

Start An Emergency Fund

If you don’t already have an emergency fund, create one that can cover at least six months of expenses. If you already have one, think about adding more money to cover up to a year of expenses.

Inheritance And Marriage

If you are married, you will need to decide early on if you want to keep your inheritance in your sole name in an individual account or place the funds in an account jointly owned by your spouse. In Massachusetts, if you don’t specify how your assets are distributed through a valid will or trust, intestate laws will determine what happens to your estate.

For instance, without proper planning, your spouse may automatically inherit up to $200,000 of your estate, plus a percentage of the remainder, depending on your family structure. Consulting a legal expert will help ensure your inheritance aligns with your intentions.

It’s also important to understand that even if you keep the inheritance in your name only, using funds from that account for joint or family expenses could turn it into a marital asset, depending on your state’s laws.

Gifts

If you’re thinking about giving part of your inheritance to your children while you’re still alive, you could trigger a gift tax or face negative income tax consequences if the gift isn’t properly structured. It’s important to fully understand all the potential consequences before moving forward with gifting.

Take Care of Your Liabilities

If you have significant debts or liabilities, you may consider using a portion of your inheritance to pay the balance off or lower it.

Still Working? Put Away More Toward Your Retirement

Some financial professionals estimate that to retire comfortably, you should have saved the equivalent of one year’s salary by age 30, three times your salary by age 40, six times by age 50, and eight times by age 60. If you are working and are not contributing the maximum to your 401(k), bump up your withholding, particularly if you are not meeting your employer’s match. If your employer does not offer a 401(k), start funding an IRA. Note that if you have inherited a traditional IRA, any withdrawals you make will be included in your taxable income.

Hire a team of professional advisors

You will need a team of professionals to help you develop long-term plans to make your inheritance last. A financial advisor will help you analyze your current finances and build a solid financial foundation, including investments, credit and debt management, college savings, and retirement planning.

Your advisor can assist you in planning for long-term financial goals. These may include purchasing your first or second home, acquiring an investment property, or setting up retirement funds. Additionally, your advisor can help you with establishing a charitable foundation if that aligns with your goals.

An insurance agent will help analyze the necessary types and amounts of insurance (life, long-term care, and liability) to protect you and your family.

A tax professional can assist you in analyzing cash flow and developing a strategy to minimize capital gains and other income taxes. We can also help you create or update your estate plan, which should include a will or revocable trust, medical directives, and a durable financial power of attorney.

Additionally, we can work to reduce or eliminate estate taxes (both federal and state), establish a gifting strategy, meet your charitable goals, build a family legacy, and safeguard your inheritance from creditors, predators, and potential lawsuits.

If your inheritance is large enough, it can last throughout your lifetime. But do not attempt to create a plan to make it last as long as possible

At Jordan & White, we’re dedicated to protecting your interests today while building a solid plan for your future. Our comprehensive, custom estate planning services are designed to meet your unique needs at every stage of life.

Whether you’re buying or selling real estate, we work closely with buyers, sellers, and lenders to prevent potential issues and ensure smooth, successful closings. We also guide families through probate, estate, and trust administration with efficiency and compassion.

If you have any questions or would like to explore your legal options, contact us at 978-744-2811. We’re here to help you take the next step toward securing your future.