Your favorite aunt recently passed. While you’re still mourning her loss, you learn that you are named as a beneficiary of her estate. It’s a scenario not all that uncommon, experts say. Baby boomers are expected to leave estates of as much as $136 trillion to their families over the next 47 years.
Thoughtfully managing an inheritance is the best way to honor your loved one’s memory. Here are a few tips if an unexpected windfall comes your way.
Take a Breath and Your Time
The loss of a loved one is an emotional time. While you are grieving is not the time to rush into major life, or financial, changes. The best thing you can do when you receive an inheritance is to do nothing, at least for a period. Don’t quit your job, don’t rush out to the auto dealer. Give yourself some time to breathe and think. Otherwise, you run the risk of becoming one of the statistics in a Lund university study. It found that an average inheritance is gone within five years due to financial mismanagement.
If the inheritance comes as a lump sum check, deposit it in a federally insured money market account temporarily. Your money will be safe until you are ready to use it.
Think About Your Goals
While your windfall could be enough to quit your job and travel the world, don’t count on it. According to the Federal Reserve, about 85 percent of inheritances are less than $250,000. The majority are under $50,000. Those amounts are nothing to sneeze at, but you may be surprised at how quickly they can disappear without good planning.
Now is a good time to sit down with your financial advisor in person or virtually and strategize the wisest use of your newfound dollars. Some possible uses, based on your plan and financial priorities, might include the following:
- Paying off debt — Many financial experts recommend paying off debts first, starting with uncollateralized loans like student loans and credit cards. Next, focus on collateralized loans on depreciating assets like cars.
- Strengthening your emergency fund — Experts recommend having three to six months of savings for rainy day expenses.
- Contributing to the kids’ education fund — But remember, there’s a good chance your student can get grants, scholarships and loans to cover part of college costs.
- Setting aside for big events — You might want to save for an upcoming wedding or other life event (like having a baby).
- Paying down the mortgage — Consider taking advantage of current low interest rates to buy a new home or refinance your mortgage.
- Beefing up your retirement accounts — The amount you can contribute is limited by the IRS and by your income. A financial advisor or tax consultant† can guide you in the amounts allowable, but a good rule of thumb is to contribute enough to get the maximum match for your employer.
- Giving to charitable causes — Consider using some of your funds to do more good in the world.
Don’t Forget to Enjoy It!
Using your inheritance to further your financial goals and support your favorite causes is a good feeling. But don’t feel guilty using some of your funds just for fun! Doing something that makes you happy and checks a bucket list goal honors your loved one, too.
Consult a Professional
Receiving an inheritance can be emotional and raise questions about how to best use it. Contact the UFCU Investment ServicesTM team, available through CUSO Financial Services, L.P. (CFS*), at (800) 252-8311 x21081 to help guide you.
Consult Our CFS* Financial Advisors
For guidance and support planning for your long-term goals, contact the CFS Investment team at UFCU to learn more.
† CFS does not provide tax or legal advice. For such guidance, please consult a qualified tax and/or legal advisor.
* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. UFCU has contracted with CFS to make non-deposit investment products and services available to credit union members. CFS does not provide tax or legal advice. For such guidance, please consult a tax and/or legal advisor.