Receiving an Inheritance--What Next?

Katie DuncanApril 4, 2022


Cartoon man with money bags falling around him

Receiving a large inheritance can be a major gift, but it also comes with a big responsibility. Commonly, the death of a loved one paired with an unexpected windfall can lead to poor financial decision-making. However, an inheritance— no matter how much money— has the potential to improve your financial situation by multitudes. By taking the time to develop a long-term plan for the money, you can set yourself up for financial success and perhaps leave your own descendants a similar gift once you’re gone.

In this article, we’ll break down what you should keep in mind when receiving a large inheritance and some ways that you use the money to improve your financial security.

Financial Planning through CFS*

Schedule a Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS)*.

4 Things to Remember When Receiving a Large Inheritance

Upon receiving inheritance money, keep these four tips in the front of your mind.

1. Don’t rush into a decision.

With emotions and tensions running high following the death of a loved one, it can be easy to rush into financial decisions. Give yourself some time to make a logical, thought-out choice. It’s best to leave any money or assets be, if possible, until you are in the right headspace to make important financial decisions.

2. Don’t count on the money until you have it.

You may be expecting a large inheritance from a loved one, but many times, heirs end up receiving less than they thought. Potential scenarios include:

  • Your loved one left their estate to someone else
  • Your loved one incurred large bills or debt at the end of their life
  • There are more heirs than you anticipated
  • There was no will and you are not legally an heir

You certainly wouldn’t want to make any big purchases expecting the money to be in your bank account soon only to receive much less or nothing at all. As a general rule of thumb, don’t count on the money until it’s in your possession.

3. Start with a plan.

Before you start spending or moving money around, create a general plan. Map out your own goals and priorities for the coming years. From there, start looking at how your inheritance money can help you jumpstart or achieve these goals.

4. Get help from professionals.

A large windfall is often uncharted territory for many. Receiving an inheritance can come with a number of tax and legal implications. Navigating inheritance tax, estate tax, and the laws around inheritance can be tricky. Don’t be afraid to enlist the help of an attorney, tax professional, and financial planner. These professionals deal with others in your situation every day and will be able to help you make the best decisions to meet your financial needs.

Always be sure to properly vet any professionals that you decide to use during this time. Go with reputable professionals. Unfortunately, there are people out there who will take advantage of people in this vulnerable situation. The last thing you want to deal with is a crook taking off with your money or stealing your identity. Research professionals online or turn to your personal network for recommendations.

How to Manage a Large Inheritance

While the best way to manage an inheritance comes down to your personal financial situation and goals, there are a few different general goals to consider.

1. Pad your emergency fund.

If you don’t already have an emergency fund, set aside three to six months’ worth of living expenses in a savings account. This money can help you stay afloat during unexpected financial setbacks such as illness or the loss of your job. If you already have an emergency fund, consider adding an extra month or two of expenses for padding.

2. Get out of debt.

Have student loans, credit card debt, or a high-interest car payment? Paying off these debts can free up your cash flow, allowing you to put the money you earn towards your other financial goals. Paying off debt can also help you improve your credit score, which will get you in shape for larger purchases— such as a house— down the line.

A good strategy is to start with your most expensive debts (i.e., the debts with the highest interest rates) and pay those off first.

3. Purchase a home or pay off your mortgage.

Is purchasing a home on your horizon? An inheritance can serve as a nice down payment and help you cover closing costs.

However, take this quick word of caution. It can be tempting to purchase a home that is well above your means when you have a large down payment to put down. Make sure that you won’t be financially over-extended with monthly payments, taxes, repairs and maintenance, and homeowners’ insurance.

If you already own a home, consider paying off all or a portion of your mortgage. This can reduce your monthly payment amount, freeing up more cash each month for other priorities.

4. Plan for your future.

Using your windfall to plan for your later years of life is another good option. A small financial cushion from your inheritance can help you maintain your lifestyle while you max out your 401(k) contributions from your paycheck.

If you are already on track to max out your 401(k), open an individual retirement account (IRA) for additional tax-advantaged retirement savings.

5. Invest your money.

Want to grow your money over time? Don’t stash it in a savings account. Instead, invest it. A financial planner will be able to guide you to specific investment portfolios that match your risk tolerance, but some options include:

  • Stocks
  • Bonds
  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Real estate investment trusts

Depending on how much you inherit, you may be able to invest in such a way that provides a steady stream of income without ever having to dip into the principal inheritance amount.

6. Put money in your children’s or grandchildren’s college fund.

Hoping that your children will also be able to benefit from the money that you’ve been gifted? Set aside money for your children or grandchildren’s college education with your nest egg. This can also help you by relieving the future financial stress of paying for ever-increasing college tuition and expenses.

Getting a large inheritance?

If you’ve recently received a large inheritance, take the first step towards smart money moves and get the help of a financial advisor. Get started today by talking to a CFS* financial advisor who can get you on the right track with an investment strategy to meet your goals now and in the future.

* 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. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

CUSO Financial Services, L.P. (CFS) does not provide tax or legal advice. For such guidance, please consult your tax and/or legal advisor.

Financial Planning with CFS*

Schedule a Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Katie Duncan

Katie Duncan is a financial writer based in Austin, Texas. Her articles include financial advice for freelancers, homebuyers, and more. When she’s not writing, Katie loves traveling and exploring the outdoors with her friends and her dog, Poe.