By Yusuf Osman, MBA
Receiving an inheritance is something most of us only dream of. We imagine what we’d do with the windfall and how it could impact our future. But when it comes down to it, the news that an inheritance is actually coming your way is usually accompanied by conflicting emotions—everything from grief to shock to gratitude to confusion. Losing a loved one is hard, but inheriting money can be a blessing. An inheritance can improve your financial situation and offer peace of mind, and it can also remind you of your loved one’s legacy and how much they cared for you.
The unfortunate reality is that sometimes people who receive an inheritance don’t know how to properly manage it. In worst-case scenarios, inheritors blow their inheritance in a matter of years or even months, sometimes falling into more debt as a result of overspending.
You want to use these new funds wisely and avoid risking the legacy your loved one left for you, so it’s critical to approach your inheritance thoughtfully and strategically. Allow yourself time to work through this transition and explore the options available to you. As you navigate this process, keep the following in mind.
Take a Moment
Before making any decisions about the money, you need to process the loss of your loved one. Failing to deal with your grief can result in emotional spending that compromises the money you’ve just received. If you give yourself some time, you may become more sensitive to your loved one’s wishes or have the chance to clear your head of complex emotions.
If your loved one spent their life building and protecting their wealth, they probably hoped you’d do the same. Letting your inheritance sit for a minute can help you overcome the initial temptation to splurge on something like a fancy vacation or expensive new home. If it’s important to you to honor their legacy, don’t forget to take care of your own emotions to protect the wealth they’ve gifted to you.
Understand the Type of Inheritance You’ve Received
It’s probably a good idea to consult with a tax planning or investment advisor professional so you understand what type of inheritance you’ve received. Common types of inheritances include:
A trust account or cash
A retirement account, such as an RRSP or RRIF
A house or other property
Knowing the type of inheritance you’ve received impacts how you access the funds, any taxes that may be associated with it, and what your options are to move forward.
For example, if you inherit a home but don’t want to live in it, you may need to decide whether you want to sell it or keep it as an investment property. That means some work to understand the local market or a better grasp of the benefits and pitfalls of being a landlord (it’s not for everyone). Not to mention becoming more aware of the tax issues surrounding an investment property.
Likewise, inheriting a retirement account comes with its own set of considerations, particularly if you inherit the retirement account from a non-spouse. Regardless of the inheritance you receive, it’s best to contact a tax planning or financial professional who understands the intricacies of inheritance situations.
Take Stock of Your Financial Situation
Once you understand the type of inheritance you’ve received, you’re better equipped to align your plans for the inheritance with your other financial goals, such as:
Contributing to your retirement account
Paying down your mortgage
Saving for your children’s college education
Giving to a charity or foundation you care about
Buying a vacation home or taking your family on vacation
Don’t Go It Alone
As with any major financial decision, consulting a professional is the most important step. Experienced and objective advice can help curb temptation and ensure you’re not misusing the inherited money, and a trusted professional can also help you optimize the inheritance to build a better financial future for the long run.
The goal of my Life By Design Plan is to help my clients live confidently with their future in mind. I can partner with you to help you align your most important priorities, such as your financial needs, family values, and charitable interests, with your financial resources in a way that is tailored specifically for you. If you want to partner with an investment advisor who can help you with your financial concerns, contact me at (613) 230-5895 or firstname.lastname@example.org.
Yusuf Osman is a Senior Investment Advisor at Argosy Securities Inc., an independent full-service financial advisory firm dedicated to helping clients create financial freedom, security, and peace of mind. With over 30 years of experience in the finance industry, Yusuf is committed to educating, engaging, and inspiring as many people as possible to take control of their finances. He spends his days developing a thorough understanding of his clients’ lives, concerns, and dreams to help them build a program that keeps pace with changes in both the markets and their lives. Yusuf graduated from the University of Ottawa with a bachelor’s degree in Science and earned an MBA in Finance from Queen’s University. To learn more about Yusuf and his Dynamic Wealth Program for Women, go to https://www.argosy-osman.com/women or connect with him on LinkedIn.