Key Steps to Take When You Inherit a Large Sum: A Financial Guide

Receiving a significant inheritance can be a life-changing experience, offering both exciting opportunities and potential challenges. Whether the funds come from a family member’s estate or an unexpected inheritance, managing this newly acquired wealth requires careful planning. One of the most important steps is to consult with a qualified financial advisor. The following information will give you insight into managing your inheritance and suggest different professionals to consult with.

Step 1: Make Time for Reflection

Before jumping into any decisions, it’s important to take a step back and reflect on your inheritance. Giving yourself this time to think will help you avoid rushing into choices and allow you to handle your new financial situation with care and consideration.

Step 2: Consult with Professionals

 1. Financial Advisor

If you haven’t already, there are a few key professional relationships you might need to set up. First on the list is a financial advisor. This part can be straightforward if you already have a trusted fiduciary financial advisor. Your advisor will work with you to develop a financial plan that aligns with your long-term goals and inheritance. This process usually begins with:

• Evaluating Your Current Financial Situation and Goals: Start by assessing your current financial state and goals and be ready to discuss them with your advisor. They’ll help you create a plan to pay off debt, establish an emergency fund (usually three to six months’ worth of expenses), and manage your various accounts effectively. Planning for these aspects is crucial at any stage of life. Building a strong connection with your advisor is essential to help ensure they understand and meet your specific goals and needs.
• Creating a Strategy: Developing a strategy to reach your long-term goals is key to achieving them. Your advisor will design a tailored plan that aligns with your risk tolerance and carefully consider all your options to help find the best path to success.
• Reviewing Your Plan Regularly: It’s important to schedule regular check-ins with your advisor—whether annually, semiannually, or as needed. These meetings will help confirm that you’re on track with your goals and provide you with peace of mind.

2. Accountant

Next, you might need to consult with an accountant. Your tax professional will assist you in navigating various tax issues and developing a strategy to minimize your tax burden. Some of the methods they might use include:

• Charitable Giving: There are several ways to reduce your tax bill while supporting the charities you care about. Options like donor-advised funds, direct donations, and qualified charitable distributions (QCDs) can be effective strategies. Your accountant and financial planner should collaborate with you to determine the best approach for your situation and make the most of both your charitable giving and tax savings.

3. Estate Attorney

Finally, you might need to consult with an estate attorney. An estate attorney can help clarify any legal questions you have regarding your inheritance and ensure that everything is managed correctly. They’ll guide you through the necessary legal processes to handle your inheritance properly. After receiving a large inheritance, you might need to make updates, including:

• Estate Planning Documents: Depending on the size of your overall estate, you may need to update your estate planning documents. This could include revising your will, trusts, beneficiary designations, power of attorney, and healthcare directives to reflect your new financial situation and properly document your wishes. 

Step 3: Enjoy Your Inheritance, Wisely

Enjoying your inheritance is just as important as taking the practical steps outlined above. For instance, if traveling is a passion of yours, discuss it with your financial advisor. They can help you develop a plan that includes a budget for your travel expenses each year so that your trips can fit comfortably within your overall financial strategy.

Inheriting money can be a wonderful opportunity, provided you take the right steps to manage and protect it. Seeking professional guidance is key to making the most of your inheritance and using it to achieve your long-term goals. With the right approach, your inheritance can be a powerful tool in shaping your future.

The opinion of the author is subject to change without notice and must be considered in conjunction with relevant regulation, as well as subsequent changes in the marketplace. Any information from outside resources has been deemed to be reliable but has not necessarily been verified. Each individual has unique circumstances to which this information may or may not be relevant. Under no circumstances will this information constitute an offer to buy or sell and it does not indicate strategy suitability for any particular investor.