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How to Manage a New or Future Inheritance

The term “windfall” was first coined in the 15th century to equate unexpectedly good fortune with fruit falling from the sky. Just as an apple can drop to the ground without the need for a ladder, certain people wake up one day with access to a life-altering fortune without even lifting a finger.

If you anticipate such a day to arrive for you and your family, we recommend you consider how a large inheritance will affect your life. For those who have recently experienced a windfall, an estate planning attorney can guide you on the next steps you should take.

Prepare for the Future

Within the United States, financial analysts project that within the next few decades, the members of younger generations are expected to inherit $30 trillion. For many young adults, a large inheritance may be their first opportunity to actively build wealth and explore investment opportunities.

Without intentional goals in mind, a sizable portion of an inheritance can be wasted. Whether it be starting a business, paying off student loans, or buying a house, try to visualize how an inheritance may be able to help you realize your life dreams. However, keep in mind that a potential future inheritance is not guaranteed, and therefore future spending plans should be made cautiously.

Understand the Inheritance Process

Before your inheritance is distributed the following must occur:

  • The deceased person’s executor must organize all relevant documents.
  • All assets in the estate must be valued.
  • All outstanding bills, debt, and owed taxes from the deceased person must be paid.

In total, this entire process typically lasts 12-18 months. We recommend taking this time to reflect, organize, and prepare for your new financial situation.

Factor in State Taxes

Currently, only six states in the US impose an inheritance tax: Maryland, Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania. Additionally, eleven states impose an estate tax, including Maryland.

While many estates may not be required to pay an estate tax or an inheritance tax (immediate family members are typically exempt from the inheritance tax), you should be aware of any taxes which may be due.

Commit to Responsible Spending

Regardless of the size of an inheritance, the death of a loved one has the potential to be absolutely devastating to beneficiaries. Recklessly spending a sudden windfall as a means of managing grief may result in more financial trouble down the line.

Keep in mind that many large luxury purchases often accrue additional expenses related to management, insurance, and general upkeep. Without the appropriate level of care and attention, the money from a new inheritance may not last more than a few years.

If possible, talk with your loved ones about how they envision utilizing their inheritance. Remember that an inheritance is a gift provided by your loved ones to ensure a certain level of safety and security in your life and was likely not intended to be spent in a brief period.

The right inheritance can provide the means necessary to save up for retirement, pay for a child’s college education, or to purchase a new home.

Consult With the Right People

Before making any significant decisions regarding your inheritance, consider consulting with a professional financial advisor and estate planning attorney. When seeking legal and financial services for the first time, beneficiaries should always take extra precautions to avoid illegitimate and predatory individuals. For the sake of continuity and trust, beneficiaries may want to utilize the services of attorneys and financial advisors who have previously worked with the family.

Whether you are looking to plan your estate for after you pass, need help managing a new inheritance, or are expecting a windfall in your lifetime, contact our office today for a more thorough consultation on what to expect throughout the estate planning process.

At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estates and trusts for their specific needs and desires. If you have questions, please contact us at (443) 589-5600.

Related blog posts:

How to Inventory Your Assets for Your Family After You Pass
How to Have a Conversation With Your Family About Your Wishes for After You Pass
What Are Gift Tax Returns and Who Needs to File Them?
The Top 5 Benefits of a Trust
Estate Planning 101: Who Should I Choose as My Trustee?