What we’ll cover:
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.
Schlesinger said mortgages are emotional and something most people want to pay off right away, 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.
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.
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.
Those are the kind of things your windfall can help fund.
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:
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.
This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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