7 Steps to Make the Most of an Inheritance

Don't squander this gift — which can keep on giving to your financial security.

Lucy Lazarony • September 27, 2019

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When someone we love dies, it can be tough to make decisions, let alone financial decisions about an inheritance.

A little planning can go a long way, though.

These steps will help guide you through the process of managing newfound wealth responsibly so you don’t squander your windfall:

1. Don’t rush

Just after someone dies, when the grief is acute, is not the time to make major financial decisions. Give yourself months to cope with your grief and put decisions regarding an inheritance on hold.

“[I]t’s important to realize the [death] itself can create a lot of conflicting emotions. Most big fiscal decisions can probably wait several months and should,” says Daniel Tobias, a certified financial planner at Passport Wealth Management in Cornelius, North Carolina.

2. Find a safe place for the money

A savings account or money market account is a smart, safe place to put the money from an inheritance while you are waiting for your grief to subside and for any shock to wear off.

In fact, such an account is a good place for your money to sit for however long you need to ponder your next move.

Money in deposit accounts, such as savings and money market accounts, is insured. The Federal Deposit Insurance Corp., an independent federal agency, insures such deposits for at least $250,000.

Before banking your inheritance, though, confirm that the bank you want to use is FDIC-insured by using the FDIC’s free BankFind tool.

Another advantage of putting inheritance money in a savings or money market account is that it will earn interest.

Some banks, particularly online banks such as CIT Bank, currently pay more than 2% on savings accounts. You can use a free online resource like Money Talks News’ savings account search tool to view interest rates from multiple banks in one place.

3. Take inventory of your finances

When enough time has passed and you’re ready to make financial decisions again, take stock of your finances.

Review what’s in your checking, savings, investment and retirement accounts. Don’t forget to check out where you are with any loans, mortgages or credit card debt. What do you have and what do you owe?

“You can do this on your own if you are comfortable, or with the help of a financial professional,” says Lindsay Martinez, a certified financial planner at Xennial Planning in Oceanside, California.

If you go with a pro, be sure the person is a fiduciary. Such professionals are obligated to put your best interest before their own.

One way to find vetted fiduciaries in your area for free is to go through Money Talks News partner Wealthramp.

4. Pay down debt

If you have debt, pay off those balances with your inheritance money.

“The simplest answer on what to do with a windfall is to pay off debt. Bringing down your debt will always lower the risk in your financial life and gives you more freedom later,” says Wakefield Hare, a certified financial planner at Greater Than Financial in Kansas City, Missouri.

Start by paying off the debt with the highest interest rate or the debt with the smallest balance. Not sure which is better for you? We break down the pros and cons of both approaches in “The Best Way to Kill Off Your Credit Card Debt.”

5. Establish emergency savings

If you don’t already have emergency cash, set aside some of your inheritance to build an emergency fund.

If possible, set aside enough money to cover three to six months of living expenses, if not more. That will enable you to cover a large unexpected expense or weather a prolonged period of unemployment without having to go into debt.

6. Think long-term

Once you pay off debt and create an emergency fund, take this opportunity to plan for your financial future.

“If you have not done so already, this is a great time to put together a long-term financial plan, review or create an estate plan, and start budgeting,” says John Bush, a financial adviser at Elevate Financial Planning in Grand Rapids, Michigan.

You should also use as much of your inheritance as you can for contributions to retirement accounts.

Not sure where to begin? You may want to reach out to a fiduciary financial adviser or planner for help. However, it’s possible to handle tasks like creating estate documents or building a budget yourself with the aid of online services such as Rocket Lawyer and apps like YNAB (short for “You Need a Budget”).

7. Splurge a little

There is nothing wrong with splurging a little with inherited wealth after tackling debts and building an emergency fund. Some fun is allowed. And it may be a way of honoring a loved one who died.

Madeline Napier, a certified financial planner with Minerva Wealth Planning in Columbus, Ohio, tells Money Talks News:

“This loved one who passed wanted you to have these funds because you were important in their life. So, enjoy a small portion of the funds, whether treating yourself to a dream vacation or just a nice dinner.”

How have you managed an inherited windfall? Share your advice on our Facebook page.

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