Don’t let an inheritance windfall be your downfall

The inheritance of a considerable amount of wealth can be overwhelming. This is often especially true for individuals who previously struggled financially. While it can be tempting to spend all or a portion of one’s inheritance on a long pined-for home or car, to ensure for one’s own future financial security, it’s wise to consult with an estate planning professional who can provide financial and investment advice, guidance and assistance.

Upon receiving an inheritance, it’s wise to put the money into an account or accounts where it cannot be easily spent. Putting money in a money market account or short-term CD ensures that one’s inherited assets are safe and secure. It’s then wise to take a look at any outstanding debts and determine what to pay off. For example, paying off high interest credit cards may make more sense than paying down or off a car or home loan.

Once debts have been settled, an individual is advised to stow away a considerable amount of inherited assets into savings, retirement and investment accounts. Depending on one’s stage in life, possible options include a 529 college savings plan, Roth IRA, CD, treasury securities and the stock market.

In some cases, when relatives and friends get wind of an inheritance; requests for loans, gifts and donations come pouring in. When faced with these types of financial requests, it’s important to remain steadfast and stick to one’s long-term financial plan. That’s not to say that an individual shouldn’t gift money to a struggling child or donate to a charity. It’s wise, however, to consult with an estate planning professional and have a comprehensive plan in place.

Source: Consumer Reports, “How to handle an inheritance: Follow these 9 steps to avoid making some common mistakes,” Feb. 2011