What To Do First With An Inheritance

What would you do if you received a large amount of inheritance money? If you want to be financially prudent about it, the answer is nothing — at least, not for a year.

As Susan B. Garland explains in The New York Times, many people spend their inheritances faster than they expect by splurging on short-term pleasures and failing to plan for the tax burden. Garland quotes Susan Bradley, founder of the Sudden Money Institute, who suggests waiting for as much as a year before spending any of your inheritance money:

Ms. Bradley recommends that new heirs enter “a decision-free zone” for at least several months to a year to think through options. During that time, she suggests creating what she calls a brain trust of professionals, such as a financial adviser, an accountant and a lawyer.

Until a plan is in place, heirs should park any cash and life insurance proceeds in a federally insured bank account, but not in a joint account with a spouse, experts say.

Yes, you read that correctly — experts suggest keeping your inheritance in your own bank account, not a shared account with a spouse. (If you keep your inheritance money completely separate, you have a better chance of it being considered “separate property” in the case of a divorce — though you’ll want to meet with a lawyer to get the full details.) Put your money in a place where nobody in the family can access it but you, and then don’t touch it.

Waiting a year not only prevents you from blowing your inheritance on a temporary luxury, but also gives you a standard response to offer people who might assume your new windfall makes you more amenable to requests for financial help. No, you can’t give your friend or cousin (or spouse or child) extra cash to fund their latest business idea or whatever it is. You’re not spending any of your inheritance money this year.

After the year is up, and after you’ve moved beyond the immediate emotions surrounding both your loss and your inheritance, you’ll be able to make more thoughtful decisions about what to do with the money. You won’t be acting out of grief or excitement or pettiness or fear, and will have had some time to talk with accountants and lawyers about all of the options and implications that come with an inheritance.

So don’t spend your inheritance right away. Even if you want to use your inheritance to solve an immediate financial problem, like paying off debt, give yourself a few months to consult with financial professionals and learn about everything associated with inheritance money, from taxes to marital property laws. That way, you won’t waste a penny of the money that was designated into your care.

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