Receiving an inheritance can often be a bittersweet experience. While it has the potential to make a big impact on your life, it’s usually accompanied by emotional turmoil and the sudden responsibility of managing newfound wealth. To work your way through a complex situation like this requires an understanding of your legal responsibilities, as well as which immediate steps need to be prioritized.
Legal and Administrative Considerations
When you receive an inheritance, one of the first things you need to wrap your head around is the probate process. This is the process where a will is effectively proven in court to be a legitimate legal document. It also includes paying any outstanding debts or taxes from the estate before distributing the remaining assets to heirs.
If a property is part of the estate, probate will also affect the house sale process and when you’re allowed to actually sell it. Different jurisdictions have slightly different approaches, but the heir will be granted the right to sell the property if they wish at some time during the probate process. There could also be inheritance taxes related to the property, but again, this can vary and will depend on the specifics of your situation.
If there are outstanding debts that need to be paid, the executor of the estate is responsible for them. This is a legal requirement, and if you are named as the executor, you should take your role seriously. Obtaining important documents of the deceased could be one way to help speed things up and proper recordkeeping relating to your inheritance will come in handy during tax season, as well.
Financial Planning with Your Inheritance
After the legal and administrative side of things has been taken care of and the estate has been distributed, it’s now time to turn your attention to financial planning. There could be very little or a lot to do here, depending on the amount that you inherited, and the process will usually involve setting financial goals, understanding tax implications, and developing investment strategies.
Start by defining what you want to achieve with your inheritance. This could range from funding your retirement or children’s education to paying off debts or building wealth for future generations. Next, think about the tax implications which often need careful consideration. For example, there may be taxes on the entire value of the estate, and there might even be income taxes depending on the type of assets that were inherited.
Once you’ve considered all of these things and understood what you have to work with, you can start to think about how best to invest it. Seeking advice from a professional is a very good idea in this situation, and they will often recommend diversification. Rather than having all of your money invested in one asset class, spreading your investments out reduces risk and is a much safer long-term approach.
If you’re expecting a large and potentially complicated inheritance in the future, it’s wise to come up with a plan to deal with things so that you don’t get blindsided at the time. This will make what is a very emotionally difficult time easier to deal with and help to ensure that you make the best decisions for your future.
