Managing a Large Inheritance

Receiving a large inheritance can be a confusing experience for many people. On one hand, the money and assets you receive will undoubtedly help you financially, especially if you have significant debt or other expenses you are struggling to pay. On the other hand, it can be an emotional time since you have to deal with the grief of losing a loved one. The following are some tips for managing a large inheritance in a smart way. 

Do not rush 

Dealing with grief can be challenging, so if you do end up receiving a large inheritance after a loved one dies, do not feel you have to make significant decisions right away. During this emotional time, you may be more likely to make irrational decisions regarding finances you may regret in the future. 

Pay your debts 

You may want to consider paying off debts you owe with the large inheritance you receive. This may be a good idea especially for debts charging high interest rates such as credit cards. Debts with lower interest rates, such as a mortgage, can also be taken into consideration. On the other hand, you may also decide to instead put the money into investments which may earn you more gains than what the low interest debt is costing you. However, you should also keep in mind some investments may come with a certain amount of risk. 

Invest the remaining money 

After you have paid off your debt you may want to invest the rest of your funds. It is best to look at the inheritance as a part of the rest of your investment portfolio. How you invest the money will depend on your own financial goals and investment objectives. It will also depend on the current state of the market. A financial advisor will be able to help you develop the right investment strategy for your inheritance. 

Pay attention to tax implications 

If the amount you have inherited is big enough you will have to deal with paying federal estate taxes. However, the federal estate tax only applies to inheritances beyond $12.06 million for the 2022 tax year. Also, some states do charge an inheritance tax, but it is taken out of the estate before you receive your inheritance which means you do not have to do anything about it. 

Some types of assets have specific tax implications you may want to know about. For example, securities you inherit will require you note how much the shares are worth at the time of the decedent’s death in order to know your cost basis in the case you decide to sell these securities. Also, individual retirement accounts (IRAs) have their own tax rules you should educate yourself on. 

Seek professional financial advice 

The above tips are simply general information to give you an idea of what you may be dealing with when receiving a large inheritance. However, each person’s situation is different which will require an individual financial analysis. Consulting with a knowledgeable financial advisor can help you customize a plan for managing the inheritance which is best for you.

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.