Will or trust

Receiving an inheritance is an emotionally wrought event. However, don’t let your emotions get in the way of making fiscally sound decisions.

Some folks expect to receive an inheritance, and they even factor it into their financial plan. If you are reasonably certain that you’ll receive an inheritance in the future, it may pay to account for it in the cash-flow of your financial plan. This way, you won’t be needlessly saving and scrimping on your current lifestyle, when your future already has an income stream. Likewise, the reverse is true – if you’re not certain that you will receive an inheritance, don’t include it in your financial plan. If you bank on receiving certain funds and they never materialize, you could end up outliving your money since you wouldn’t have saved sufficient funds.

After you receive an inheritance, you should do four things:

1.  Nothing.

Don’t do anything for the first 2 or 3 months. Allowing time to pass will give you space to make thoughtful decisions. Frequently, people become caught up in the excitement of seeing their net worth swell and may make frivolous purchases or place it in unsuitable investments. Waiting gives you time to update your financial plan and strategize the best way to use the windfall.

2. Create an emergency fund.

If you don’t already have an emergency fund of three to six months of total expenses invested in liquid assets, create one now.

3. Appraisals

If the inheritance included valuable jewelry or other tangible assets, get them appraised. If you will be keeping collectibles, consult with your insurance agent if you need to insure them.

4. Consult with a qualified tax lawyer and accountant

on any taxes you may owe. Inheriting real estate, collectibles, and investments can all have different tax implications. And if you and your siblings inherited joint ownership of a property, it may be a legal and practical nightmare before it turns into any liquid assets that you can invest/spend as you choose.

Now that you’re dealing with the passing on of an estate, don’t forget to work on your own will, and also read this blog piece on inheritances.

Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.

Published June 1, 2012.

Read more articles