Receiving an inheritance can change your financial life.
It can also create a surprising amount of pressure.
Suddenly, you may be responsible for an investment account, IRA, trust, property, or a significant amount of cash that took someone else decades to accumulate. And often, the inheritance arrives at the same time you are grieving the loss of a parent, spouse, or other loved one.
That is not always the best time to make major financial decisions.
One of the first questions women often ask me is:
“What should I invest this money in?”
My answer is usually: Before we decide how to invest it, let's figure out what this money needs to do for you.
Investing should come later in the process.
Here are several steps I believe every woman should take before investing an inheritance.
1. Don't Feel Pressured to Invest Immediately
There is nothing wrong with allowing inherited money to remain safely parked while you get organized.
You do not need to have an investment strategy figured out within a week or even a month.
When emotions are involved, giving yourself some time can be one of the smartest financial decisions you make.
The larger the inheritance, the more important this becomes.
You may ultimately decide to invest the money, pay down debt, purchase a home, help your children, fund retirement, establish a trust, give to charity, or use some combination of those strategies.
But you should make those decisions because they fit into a larger financial plan not because you feel as though the money is “just sitting there.”
2. Understand Exactly What You Inherited
Not all inheritances are the same.
You might inherit:
Cash
Stocks or mutual funds
An IRA or retirement account
Real estate
Life insurance proceeds
A trust
Business interests
Annuities
Collectibles or other property
Each asset can come with different tax, estate planning, distribution, and investment considerations.
An inherited IRA, for example, should not automatically be treated the same way as a brokerage account. Likewise, inherited investments may have different tax characteristics than investments you purchased yourself.
Before moving or selling anything, understand exactly what you own.
This is one of those situations where your financial advisor, CPA, and estate attorney should ideally be communicating with one another.
3. Find Out What You Owe Before Deciding What You Have
A $2 million inheritance does not necessarily mean you suddenly have $2 million available to spend or invest however you choose.
There may be:
Income taxes
Estate-related expenses
Property expenses
Required retirement account distributions
Debts associated with inherited property
Legal or administrative expenses
State-specific considerations
Before making major commitments, determine what may need to be set aside.
The goal is to avoid investing, gifting, or spending money that you later discover was needed for something else.
4. Look at Your Entire Financial Life
An inheritance should not be managed in isolation.
Instead, ask:
How does this change my overall financial plan?
Perhaps you were planning to work until age 67, but the inheritance means you could retire at 62.
Maybe paying off your mortgage suddenly makes sense.
Perhaps you've been putting off long-term care planning.
Maybe you have enough assets now that estate planning becomes much more important.
Or perhaps the inheritance gives you the financial freedom to help your children or grandchildren while you're alive.
This is why I prefer to start with planning rather than investments.
The investment portfolio should support your life.
Your life should not be built around the portfolio.
5. Be Careful About Immediately Paying Off Everything
One of the first instincts people have after receiving a large inheritance is:
“I'm going to pay off the house.”
Sometimes that is absolutely the right decision.
Sometimes it isn't.
The same applies to other debt.
Before writing a large check, compare the interest rate on the debt, your cash-flow needs, taxes, investment opportunities, retirement timeline, and your comfort level with debt.
Financial planning is rarely about finding the one mathematically perfect answer.
It's about finding the strategy that works best for your entire financial situation.
6. Don't Start Giving Money Away Yet
A significant inheritance often creates another immediate reaction:
“I want to help my children.”
That may be a wonderful goal.
But before making substantial gifts, make sure your own financial future is secure.
Women, in particular, often prioritize children, grandchildren, parents, and other family members before themselves.
Generosity is admirable.
But giving away assets that you may eventually need for retirement, healthcare, long-term care, or your own estate plan can create problems later.
First determine what you need.
Then determine what you can comfortably give.
7. Review Your Estate Plan
An inheritance can dramatically change your net worth.
That means your existing estate plan may no longer fit.
Review your:
Will
Power of attorney
Healthcare directive
Beneficiary designations
Trusts
Life insurance
Retirement accounts
You should also start thinking about what happens to the inherited wealth after you are gone.
Do you want your children to receive everything outright?
Would a trust provide better protection?
Should someone other than a family member serve as trustee?
Are there charitable organizations you'd like to support?
If your wealth has changed, your estate plan should probably change with it.
8. Think About Asset Protection and Trust Planning
Once your financial situation becomes more complex, the conversation may need to go beyond investing.
Depending on your circumstances, trust planning can help address concerns involving:
Minor children
Adult children who may not be ready to manage significant assets
Blended families
Children with special needs
Divorce protection
Creditor concerns
Multi-generational wealth
Estate administration
Incapacity
Family conflict
A trust is not appropriate for everyone, but it is worth discussing when an inheritance substantially changes your financial picture.
9. Decide What the Money Is For
This is the part of inheritance planning I find most important.
Before asking:
“How should I invest this?”
Ask:
“What do I want this money to accomplish?”
Maybe your parents spent their lives building those assets because they wanted you to have security.
Perhaps your spouse wanted to know you would be financially comfortable.
Maybe you want part of the inheritance to create experiences with your family.
Perhaps you hope to preserve the wealth for another generation.
There is no universal right answer.
But there should be an answer.
Once we know what the money is intended to accomplish, building an investment strategy becomes much easier.
10. Build the Investment Strategy Last
Only after you have worked through the other questions should you determine how the inheritance should be invested.
Your portfolio should reflect factors such as:
Your retirement timeline
Income needs
Risk tolerance
Other investments
Tax situation
Liquidity needs
Estate planning goals
Legacy objectives
Someone who needs income from an inheritance within five years may need a very different portfolio from someone hoping to leave those assets to her grandchildren 30 years from now.
This is why inheriting someone else's investment portfolio does not mean you should simply keep their investment strategy.
Their financial plan was built for their life.
You need one built for yours.
You Don't Have to Figure It Out Alone
For many women, an inheritance arrives during one of life's biggest transitions.
It may follow the death of a spouse or parent. It may happen just as you're approaching retirement. Or it may suddenly place you in charge of financial decisions you never expected to be making on your own.
Having the right people around you matters.
Through my partnership with Perennis Financial Planning, I work alongside an experienced, women-led financial planning team. Together, we bring more than 50 years of combined experience helping women navigate life's biggest financial transitions.
Our approach goes beyond choosing investments.
We help women look at the entire picture retirement, investments, estate planning, trusts, family, taxes, and legacy and coordinate with attorneys, CPAs, and other professionals when appropriate.
Because receiving wealth is one thing.
Knowing what to do with it and how to use it to build the life you want is something entirely different.
Recently Inherited Money?
Before you make major investment, gifting, or estate planning decisions, take the time to understand how the inheritance fits into your larger financial life.
If you've recently received an inheritance or expect to receive one in the future, I'd be happy to have a conversation about where to start.
Schedule a free 30-minute consultation today!
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