Your loved one has sadly passed away, and the probate process with the court is finally completed. The attorney’s office that was handling the probate has received a final “order of discharge” and has sent you your inherited share of the estate.
Now you may start wondering: What should I do with the money?
Whether the amount is a small addition to your bank account or the most money you’ve ever had, it’s important to carefully think through your spending and investment decisions.
At the Law Office of Gary M. Landau, P.A., we have over 25 years of experience helping clients navigate the probate process. Our probate attorney has seen plenty of clients successfully handle their inheritances in a way that helps their life, but others have been less careful with the money and soon regretted their spending decisions.
Here are some tips investment professionals have told our clients about how to handle their inheritances. Read on for some of their helpful advice. And be sure to contact our office at (954) 979-6566 to schedule a free consultation if you are in need of a probate attorney.
Bad Idea #1: Splurging on Pricey Luxuries
Instead: Consider your long-term needs
One of the most common mistakes people make when they receive an inheritance is to consider it like Monopoly money. It may not feel real, so it’s easy to want to spend a big chunk of it splurging on fun, big-ticket items. All of a sudden you’re pondering pricey cars, elaborate vacations, or even a new home well beyond what you would have spent on these items before.
According to the Federal Reserve, nearly a third of inheritances involve significant money, ranging from $50,000 and $250,000. This may be more money than the beneficiary makes in an entire year. When that much money hits a bank account all at once, it can be easy to conjure the dreamy things the money could be spent on.
However, it’s important to remember that the person who left you the money may have worked their whole life to save this amount. They would not want you to go through it all in a matter or months or a few years. Similarly, this may be the largest amount of money you ever receive at one time. As a result, you need to consider how it can help you meet long-term goals rather than simply satisfying your short-term wants.
Experts say it’s generally okay to take a small amount—maybe a few hundred dollars—and buy yourself something fun. But the rest should be carefully spent and invested in a way that serves your future.
Bad Idea #2: Deciding on Major Investments Immediately
Instead: Consider creating a “decision-free zone”
It’s common for people who inherit money to start hearing from friends and relatives about “amazing investment opportunities.” Sometimes this is a business they own and want funding for; other times it may be an opportunity they genuinely think will be good for you, like buying a foreclosed apartment building they’ve seen and having you become a landlord.
But decisions about such spending and investments need to be made very carefully.
Depending on your current financial needs, your inheritance money might best go towards:
- Paying off some or all of your debt
- Building up your emergency fund of easy-to-access money in a crisis
- Investing for your family’s future and/or your retirement
- Spending a small amount on pleasurable items or activities
Because of the importance of these decisions, financial experts recommend creating a period of time when you don’t decide how and where you will invest your money. This period can last months or even a year.
During this “decision-free zone” it’s wise to:
- Place the inheritance money in a federally insured bank account.
- If the inheritance is significant, research (and carefully vet) wealth management professionals and hire one, preferably someone who charges by the hour rather than as a percentage of your managed money.
- Either working with the professional or on your own, create a carefully crafted plan for how you will use the funds strategically so it lasts you long-term.
Of course, every individual situation is different, If you have urgent financial obligations, such as high-interest debt or a mortgage in arrears, for example, it might not make sense for you to wait to use at least some of the inheritance to deal with this.
However, it’s important that you avoid spending or investing money until you have taken adequate time to consider all options. Once the money is in your bank account for a while, it will stop seeming like play money, making it easier for you to make the best money management plan.
Bad Idea #3: Managing a Very Large Inheritance Yourself
Do: Meet with a financial advisor, accountant, and/or tax lawyer
Especially if you’ve inherited a significant sum of money, determining how best to invest it may be beyond your experience. Just as you would hire professionals to replace your home’s roof or fix that plumbing leak, you should consider hiring experts to help you manage your money.
This is especially important to protect the money against the ravages of inflation. Having someone who understands the tax ramifications of any investments you make is also key.
Experts suggest several professionals may be in order, depending on the scope of the inheritance and your experience managing money. This assumes you already have a probate lawyer who has guided you through the process of probating the estate and has finalized the probate.
These experts might include:
- A financial advisor
- An accountant
- A tax lawyer
Most estates in the U.S. are not taxed because they fall under the taxable threshold, currently $12 million. But other items may have tax implications. For example, if a relative leaves you property that appreciates after their death, you may need to pay tax on the appreciation when you sell it.
Relying on professionals who have earned your trust makes it more likely that you are making the best decisions for managing your money and ensuring this gift from your loved one lasts a long time.
Law Office Of Gary M. Landau, P.A.: Experienced South Florida Probate Attorney
With more than 25 years of experience and countless satisfied clients, Gary M. Landau and his team are uniquely positioned to help you with your probate and real estate needs in South Florida. Whether you’re ready to probate a loved one’s estate or to write your own will, or if you are buying or selling a home and want an attorney to watch out for you or a closing agent to handle title insurance and all documents for your closing or refinancing, the Law Office of Gary M. Landau is ready to work with you.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction.