5 Tips on How To Manage an Inheritance

What Will You Do With Your Inheritance?

Chances are some day you will receive an inher­i­tance.  According to the HSBC’s The Future of Retirement series Life After Work? report, the average American inher­i­tance is expected to be approx­i­mately $177,000.  Americans come in sixth in the world behind Australia at about $500,000, Singapore at $371,000 followed by United Kingdom, France and Taiwan*.  Inher­i­tances represent a fork in the road for benefi­ciaries with the stakes high for making a big mistake.

With an inher­i­tance in hand, arm yourself with the knowledge to ward off mistakes. Below are five tips to keep you on the right track.

1) Set a limit for how much of the money will be used for special expen­di­tures such as buying a new car or paying down debt.  A 2012 study by Ohio University revealed that heirs lose, spend or donate 50% of their inher­i­tances.   Consider paying down debt before extrav­a­gancies.

2) Invest the remaining monies in accor­dance with your investment strategy.  Don’t worry about investing at the wrong time. If you have a good strategy in the long run you will likely be better off.

3) Consol­idate your invest­ments and refrain from holding senti­mental invest­ments.  Real estate owned by multiple benefi­ciaries can be hard to get unanimous agreement on selling, but even more difficult to manage expenses or usage rights going forward.

4) Make sure you obtain the proper step up in basis.  Inherited assets receive a step up in basis and are reflected on the state inher­i­tance tax return in PA.  Inquire with the estate executor to obtain this infor­mation.

5) Under­stand the tax impli­ca­tions. Consider stretching out distri­b­u­tions from IRAs and annuities either over your lifetime or for five years.  Financial insti­tu­tions usually will provide you with options.  You should seek counsel before pulling the trigger on distrib­uting the money all at one time.  This can be a tax nightmare and catapult you into a very high tax bracket.

We think it is wise to seek advice and follow a disci­plined strategy. Better yet, have a discussion with your loved ones while they are living in terms of what to do with the inher­i­tance.  This can relieve the anxiety of making decisions and give you permission to do the right thing.

* www​.hsbc​.com/​r​e​t​i​rement, “The Future of Retirement, Life After Work?” page 26