What should I do with my inheritance?

Sudden Wealth

What should I do with my inheritance?

What should I do with my inheritance?

Building a new financial plan

Inherited money has its own unique challenges.

Unless it comes from an unknown distant relative that you never met, inheriting money can be bittersweet, and creates mixed feelings in most clients. It all depends on the nature of the relationship between the deceased and the beneficiary at time of death.

Some beneficiaries feel paralyzed with indecision once the money has been received; others feel like they’ve won the lottery! Some may even feel that if they spend a single dollar, that they are saying goodbye to the deceased all over again.

As Certified Financial Planners® specializing in inheritance planning, and having worked with many clients since 1988, Vermillion Advisors know what works best. It’s important to start the process by agreeing on a “no decision” period of time, after which the planning can be addressed and the best tax and legal strategies can be considered. Once the planning has been started, a strategy can be developed for integrating the new inheritance money into your existing finances.

Integrating New Wealth

At Vermillion Financial Advisors, we specialize in helping anyone who has or will inherit money. We are known for our expertise in helping clients manage sudden wealth. If you are anticipating an inheritance in an amount that is making you uneasy, or you are feeling pressure because of the responsibility it brings and not sure what to do next, we can help you get back in control; feeling confident and secure about the future.

Clients who have inherited sudden wealth come to us looking for a clear action plan, and immediate insight about what they now have. Most seek guidance on how to collect their inheritance, what to do once it is received, and how to protect and manage it moving forward. We have created a unique process that addresses each area of concern. There are many legal, financial, and tax implications surrounding an inheritance that we can help you address. We work closely with your other tax and legal advisors, or if necessary, we help you build a team and make sure all of your issues have been addressed.

A few things to consider if you are expecting an inheritance:

• Take your time

If someone cared about you enough to leave you a sizable inheritance, most likely the relationship was very close and you will need time to grieve and cope with your loss. This is important, and many of the major decisions about your inheritance can wait. When you are already dealing with so much, you may be too overwhelmed to give your financial options the careful consideration they need and deserve. You should be able to make more rational decisions after some time has passed. Therefore, a “no decision” time period is generally a very good idea.

• Don’t go it alone

There are so many changing laws, options and potential pitfalls surrounding inheritance situations, that the knowledge of experienced financial, legal and tax professionals will be vitally important. Unless you happen to have uncommon knowledge or very recent experience with the subject, seek help.

• The taxman may be visiting

If you inherited an IRA, it is extremely important that you weigh the tax cost of cashing it out, against the need for instant funds. A cash-out can mean that you will have to pay full income tax rates on every dollar you withdraw, which can greatly reduce the amount of your bequest. Allowing the gains of the investment to continue to compound within the account, and continuing to defer taxes – these steps can have the opposite effect and help to increase the value of your inheritance.

• Stay informed

The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct. This is especially true with regard to the taxation on capital gains. The assistance of a seasoned financial professional may be more important now than ever before.

• Remember to do what’s right for YOU

All too often an inheritance is left in its original form, which may be a large holding of a single company. While it’s natural for emotion to play a part and you may wish to leave your inheritance as it is out of respect for your relative, what happens if the value of that stock takes a nose dive? The lost value to your entire portfolio will also be relatively large. The old adage of “never put all your eggs in one basket” is very appropriate for this situation. Remember that this money is yours now – and the way in which you allocate these additional assets needs to be in line with YOUR needs and goals.

A few of the most common questions we can help you answer are:

• “Will the money I receive from the inheritance affect my taxes?”
• “I’m getting the inheritance in a trust. Does this mean I can’t use it however I want?”
• “The inheritance trust requires a co-trustee. What is their role?”
• “How can I best integrate this new money into my existing portfolio?”
• “I’d like to give away some of the inheritance. Can I do this? How much can I afford to give?”
• “Should I tell my kids about the inheritance, and if so, how much should they know?”
• “What is the best way to invest the inheritance?”
• “How do I leave enough assets to my kids so they can do something, but not so much that they will do nothing?
• “Do I have enough money to quit my job, buy a new house, move, etc.?”


Talk to a Vermillion Advisor today, discuss your financial planning objectives!

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