What to Do When You Receive an Inheritance

What we’ll cover:

• Inheritances can range, but more than half are less than $50,000
• No matter the size of your inheritance, there are a few things you should consider tackling first
• Clean up your debt, boost your emergency fund and fund your retirement
• From there, consider if any of your financial priorities have changed
• In some cases, you might want a team of professionals to you think through this, and to help navigate any tax strategies 

Inheriting money can be complicated, regardless of whether it’s a modest gesture or a financially weighty gift. For one, it’s associated with loss. For another, you might be wondering what to do. After all, you’re a smart person who intends to use that money wisely (though we won’t tell if you indulge a little bit).

According to data from the Federal Reserve, more than half of inheritances are less than $50,000, while roughly another third are between $50,000 and $249,000. 

We spoke to Jill Schlesinger, CFP® and host of the Jill on Money podcast, for her advice on what to do when you inherit some money. 

In some cases, you might want to assemble a team of professionals to help you in managing your money (more on that later). But, when it comes to financial goals to consider applying an inheritance to, Schlesinger served up this list.

1  Clean up debt

Mortgages can be emotional and something most people want to pay off right away, Schlesinger said, but she isn’t necessarily an advocate of this. The reason has to do with cash flow. For one, a mortgage could offer tax benefits (ask a professional about this), and mortgage rates are relatively low compared to perhaps, the rates you may be paying on other types of debt. 

Instead paying off your home, Schlesinger says money should go toward paying off consumer debt, which could include credit card debt, car loans or any PLUS parent loans you may have taken out to fund your child’s education.

She also says make it a priority to pay your sister, your aunt, your brother, essentially any family member you may owe money to. 

2  Beef up your emergency fund

Once your consumer and family debt is taken care of, the second area of focus should be on ensuring you’ve got enough savings to cover 6 – 12 months of living expenses. If you already have an emergency fund topped off, move on to #3. 

3  Fund your retirement

Ask yourself if you’re contributing enough to your retirement. To Schlesinger, this means maxing out your 401(k) and seeing if you and your spouse can each put $6,000 into an IRA, or $7,000 if you’re over 50. 

4  Think about other priorities

Maybe you’re going to send a kid to college (read up on 529s), or maybe you’ve got a home renovation coming up. 

Those are the kind of things your windfall can help fund. 

How some financial pros could help

Depending on how comfortable you are with prioritizing how to use the money and navigating possible tax implications, you may want to seek out professionals, like a CPA, financial advisor or an estate attorney for guidance. 

Here’s how they may help:

• Certified Public Accountant (CPA): A CPA is an accounting professional who has passed the CPA exam and has met certain work experience requirements in order to get their license. CPAs can be auditors, business advisers, tax consultants, accounting consultants and more. 
• Financial Planner: This professional could help you plan your overarching, big-picture financial life. Financial planners can have many different certifications and designations, so make sure you read up on an individual’s credentials when choosing a financial planner. 
• Estate Attorney: This type of lawyer can advise clients on estate planning. This can include providing advice on things like living trusts, estate taxes, and ensuring your assets are allocated according to your wishes when you pass away.  

Do you have to share your inheritance with your kids?

In short, no, and you don’t have to share it equally. But if you are going to share it, Schlesinger says be upfront about it because it could help keep heads cool and avoid bad blood in the long run.