Financial Advice for Inheritance
Receiving an inheritance is a significant life event that requires careful consideration and strategic management. Whether you’ve received one or are planning to leave one behind, understanding how it fits into your overall financial situation is essential.
In this blog, we will delve into the complexities of inheritance and how it intersects with financial planning.
Understanding Inheritance
Inheritance typically refers to the assets, properties and wealth passed down to beneficiaries after someone passes away. These assets vary but are usually cash, investments, shares, property, businesses, and personal belongings. An inheritance can come from various sources, such as parents, grandparents, and other family members.
In many cases, receiving and inheritance can be a life-changing event, providing financial security, opportunities for investment, debt repayment, or the ability to achieve personal goals. However, without proper planning and management, an inheritance can also present challenges. This is why understanding the nature of the inheritance and how it fits in with your broader financial goals is so important.
Strategic Management of Inheritance
Receiving an inheritance can provide financial security and open doors to new possibilities, mismanaging the inheritance can lead to financial instability and a missed opportunity. Below are some key steps for managing an inheritance:
1) Assess your Financial Situation
Before making any decisions on how to use the inheritance, assess your financial situation, including your income, expenses, debt, assets, and financial goals. Understanding your financial needs and priorities will help you make informed decisions about how to best utilise the inheritance.
An important aspect of this assessment is to determine how the inheritance fits into your existing financial plan.
2) Seek Professional Support
Once you have reviewed your position and goals, seeking the opinion of a trusted professional is beneficial. The types of people whom you should seek support include but are not limited to your accountant, financial advisor, mortgage broker, and solicitor. These key people specialise in different areas and can provide guidance and support.
A financial advisor can help to understand how the inheritance impacts your overall wealth and can help with long-term growth, preservation or debt repayment strategies for example. They can also help to determine any tax implications of the inheritance and how to best manage these obligations. Working with professionals ensures that you have a comprehensive understanding of all aspects of the inheritance, from taxes to investments and legal considerations.
As you have received a financial benefit it’s essential to have your own comprehensive estate plan in place. This may include reviewing and updating your existing plan or establishing a new Will and/or POA for example. This will help to structure your finances appropriately for the next level of estate planning where your assets will flow onto in the future.
Estate planning is also not only about distributing assets after death but also about ensuring your wishes are followed during your lifetime. For example, a power of attorney can provide someone you trust with authority to make financial and/or medical decisions on your behalf if you become unable to do so. This kind of planning helps to keep your interests protected and your inheritance to be preserved or managed according to your wishes.
Tax Implications of Inheritance
Inheritances may be subject to taxes, depending on the nature of the assets and structure. As outlined above, seeking professional guidance is important to help understand the tax implications of the proceeds and how to best structure the funds moving forward.
Emotional Aspects of an Inheritance
Inheriting assets or wealth often carries emotional weight. An inheritance usually comes from a loved one, and managing it can be a highly personal and sensitive process. It’s not just about the financial implications but also honoring the legacy of the person who left it to you. The emotions surrounding the loss of a loved one can complicate financial decision-making, leading to either impulsive decisions or delays in making necessary choices.
It’s important to take time to process the emotional aspects of the inheritance. Rushing into financial decisions while still grieving can lead to making the wrong decisions. Taking a step back and seeking professional advice during this time can help to ensure that your decisions are well-considered and aligned with your overall financial goals.
The Importance of Financial Education
One of the most valuable things you can do after receiving an inheritance is to improve your financial literacy. Understanding the basics of investing, tax, estate planning, debt reduction and wealth management can empower you to make informed decisions. Financial education can be gained through reading, attending seminars or working with a financial advisor who can explain complex concepts in a way that makes sense to you.
Philanthropy and Giving Back
For some, receiving and inheritance might present an opportunity to give back. Philanthropy can take many forms, from donating to charitable organisations to setting up a foundation in memory of the person who left the inheritance. If giving back is important to you, it’s worth considering how you can incorporate philanthropy into your financial plan.
Inheritance and financial planning are complex and interconnected processes that require careful consideration, strategic foresight and, expert guidance. By understanding the nuances of the inheritance, incorporating it into your financial plan, seeking appropriate advice, and implementing an estate plan, you can provide for the financial well-being of yourself and potentially future generations.
Whether you’re expecting an inheritance or planning to leave one behind, now is the time to take proactive steps to ensure that your wishes are carried out and your financial legacy is preserved for generations to come.
After working as an advisor for a decade, Joel founded Unified Wealth.
Unified Wealth specialises in helping clients who are facing life’s big decisions.
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