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Creating A Plan for Your Inheritance

Creating A Plan for Your Inheritance
Follow these four essential rules and manage your inheritance wisely.

While it’s everyone’s hope that an inheritance would bring them much closer to financial independence, not everyone can handle a sudden financial gain. It may be challenging to manage an inheritance as it’s a significant change that could be emotional, cause stress and create important decisions. People often immediately spend on items and vacations, or even quit jobs, which can lead to extreme regret later on.

Making an emotional purchase with part of your inheritance can be understandable. For example, purchasing a vacation home to fulfill grandparents’ wishes for extended family gatherings could be a heart-warming, collaborative decision. But the overall focus must be on long-term retirement goals and your entire financial health should be considered.

According to a 2012 study completed by The Ohio State University, average American adults who received an inheritance only saved about half of what they received. The other half of the inheritance ended up spent, donated or lost. According to the same study, one in five baby boomers who inherited a significant amount spent or lost all of it.

To avoid poor decisions and losses, here are several rules to follow when that inheritance arrives:

  1. 1. There’s no need to hurry into the decision-making process. There’s usually no benefit to rushing into decisions that could result in a mistake. For example, putting all of the money in your checking account could make it easier to spend. It may be tempting to enhance your lifestyle and get caught up in having more money than normal. Unless there’s a plan in place, you could quickly blow through your inheritance that could potentially act as a safety net for the rest of your life.
  2. 2. Fully understand your inheritance. Inheritances may arrive in various forms. It’s essential to know whether your newfound wealth is in the form of cash, stocks, bonds, retirement accounts or life insurance. It could also be a house, business or other real estate. Assets could be available immediately or over time and could produce tax situations. Having complete knowledge will lead to a better, informed decision.
  3. 3. Assess your overall financial situation. It’s important to think about your current situation and future goals, such as paying for education, helping loved ones, paying off bills, contributing to charity, adding to retirement savings or setting up a trust. Everyone’s situation is different, so it’s important to discuss your overall picture with a financial professional who can first provide an objective assessment of your financial health. Additionally, inherited wealth can come with additional taxes, insurance concerns and estate planning implications.
  4. 4. Pay off debt, consider investments, build a safety net or increase insurance. These are all viable choices for your inheritance. If you have high-interest credit card debt it makes sense to pay it down, but hold onto lower-interest mortgages. Consider setting aside one year of living expenses in an emergency fund to prepare for the unexpected. You may want to increase home owner’s or life insurance. Long-term investments can also be a good option, but age, risk level and current investments must be taken into consideration before taking that leap.


Consulting a financial advisor can help you not only determine the best choices for your inheritance, but can also help provide options for minimizing taxes. You’ll want to preserve your inheritance and have a complete financial blueprint created to ensure your lifelong dreams become a reality. If you have questions or concerns related to an inheritance or your overall financial plan, contact the team at Bayntree Wealth Advisors at 480-494-2750.

Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.

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