One in three Americans spends their entire inheritance within two years. Receiving an inheritance should be a financial asset, but for many, it’s a potential money pit. The majority of Americans aren’t financially savvy enough to properly prepare for an inheritance windfall.
This guide will give you a simple plan for receiving and managing your inheritance.
Is There a Will?
If the deceased individual prepared a will, then this legal document will dictate who receives what. The will could simply list everyone that inherits equally. Or the will could outline specifically what each person inherits.
Sometimes there isn’t a will, and in this situation, the probate court decides how the assets get distributed.
Are There Restrictions?
If your inheritance comes to you through a will, then you’ll need to read the will carefully. The deceased can include restrictions, such as how the inheritance gets paid out or possible uses for the inheritance.
You may want to receive the entire inheritance in one lump sum, but the will states that it gets paid out in small installments. The will could also state that you can only use the inheritance for education. Some people can even stipulate that you only receive the inheritance when you achieve a milestone, such as marriage or college graduation.
Beware of the Taxes
You may have to pay inheritance taxes. This depends on your relationship to the deceased and the state that you live in. Of the 50 states, 33 do not impose estate or inheritance tax.
Nebraska has the highest tax rate for inherited assets at 18%. All six states that impose inheritance tax have a spouse exemption. Some also have a full or partial exemption for immediate relatives.
Give Yourself a No Decision Period
Do not rush to make any decisions. Your inheritance is a lot of money that you may not be experienced with. The inheritance can also spark strong emotions, which make it difficult to make financially sound decisions.
Give yourself a cooling-off period before you start making decisions. This gives you time to process your emotions and consider all of your options.
Consult With a Financial Advisor
Consulting with a financial advisor can help you to create a plan. Services such as advisorwealthmastery.com will help you allocate your inheritance to address several financial needs. They can help you decide what and how much debt to pay off, establish retirement accounts, and make a large purchase.
Do Not Spend It
While your inheritance can seem like free found money, this isn’t the time to go on a spending spree. Do not fall into the trap of spending all of your inheritance. Many people that take this route end up in more debt than they were before receiving the inheritance.
Handle Receiving an Inheritance Like a Pro
Receiving an inheritance is a blessing and curse. If you find yourself on the receiving end of an inheritance, don’t make any quick decisions. Take a step back, evaluate your options and determine your liabilities.
Consult with a financial advisor to create a smart money plan. Then you can manage your new assets and leverage them to grow.
Educate on more financial topics by checking out our other business and finance articles.