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How to Invest Your Inheritance


by Jill Gleba, AIF, Financial Advisor

Receiving an inheritance from a family member should be a blessing. But too often, it becomes a curse.

I’ve seen too many people get an inheritance and then throw it all away. They go on a few vacations, buy a fancy new car, and before they know it, the money is gone and they have nothing to show for it.

Your inheritance has the potential to change your life in such a good way, so make it count! Here’s my advice to help you make the most of your inheritance.

Go Slow

When a loved one dies, you’re not thinking clearly enough to make major financial decisions. If you received a lump sum of money, park the funds in a money market account for a few months, take a deep breath, and take some time to mourn. And then, when you’re ready, you can focus and develop a plan for your inheritance.

Honor Their Legacy

As you start thinking about what you want to do with the inheritance you received, it’s important to remember where it came from. I encourage inheritors to think about all the hard work and sacrifice that went into making their inheritance possible. This is a person’s legacy here! Keeping this in mind will bring a sense of responsibility, accountability and intentionality to the situation and help you use your inheritance wisely.

Build a Dream Team

You need to form a board of advisors of highly qualified professionals who can walk you through the inheritance process. Depending on the type of inheritance you receive, and how much you receive, you may need to seek counsel from several, or perhaps all, of the following:

· a Certified Public Accountant (CPA) or tax advisor

· an insurance/investment professional

· an estate planning attorney

· a real estate agent

These people aren’t there to tell you what to do. They should be teachers who will sit down with you and help you understand all your options.

· Pay Off Debt — If you have any debt you’re trying to pay off, use part of your inheritance to fast-track your debt snowball. Eliminate as much debt as you can. If you can write a check and be debt-free tomorrow, do it!

· Build Your Emergency Fund — Having three to six months’ worth of expenses saved in a money market account will help you deal with life’s big emergencies.

· Invest it: A financial planner will help you decide where to invest, and what type of investment would match your goals and risk. They will not tell you what to do, and instead, should discuss your options and help you divide your inheritance in the way that is best for you.

· Increase your 401(k) contributions: Make sure you are contributing at least 10% of your income every year.

· IRA: Take advantage of your situation and start a Roth or Traditional IRA. Your financial advisor can help you choose.

· Pay Down Your Mortgage — Can you imagine having no more house payments? Using part of your inheritance to pay down your mortgage can move you closer to that finish line and save you thousands of dollars in interest.

· Save for Your Kids’ College Fund: You could put some of your inheritance into an Education Savings Account (ESA), a 529 Plan, or a UTMA/UGMA (Uniform Transfer/Gift to Minors Act).

· Donate: Give some to your place of worship, or a charity of your choice.

· Enjoy Some of It — It’s okay to set aside a small portion of your inheritance to have some fun; just remember this. If you pay down your debt, you WILL have extra every month to set aside for a vacation, new car, or whatever you have in mind.

What If I Inherit a House?

There are three things you can do with an inherited house: sell it, rent it out, or live in it. You need to discuss these options at length with your real estate professional Tracy, to help you make this decision.

Sell It

Usually when someone inherits a house, it is worth more than it was when the original owner bought it. If that’s the case, you may receive a “step-up in basis” to minimize your capital gains taxes if you decide to sell the house. Seek advice from a tax advisor.

Rent It Out

Becoming a landlord and renting out a house also comes with some potential drawbacks. The ongoing upkeep and maintenance, along with more complicated taxes, may be a source of costly headaches. You also have to

decide whether to maintain the property yourself or hire a property manager to do it for you.

Live In It

If you inherit a house that’s paid for and decide to live in it, you’ll have no mortgage payment. That means you can make some serious headway on your financial goals with that extra cash!

Keep in mind, though, that moving into an inherited house means you’ll be taking on the financial responsibilities that come with homeownership. If you don’t already have a solid emergency fund, use any extra cash to save up three to six months of expenses so you can cover anything that comes along.

You’ll probably only get one inheritance. Use it wisely! This is definitely not a time to try to figure things out on your own. You need a dream team in place to help you make the most of your loved one’s legacy.

Gleba & Associates is an independent firm that treats everyone like family. Their Investment Advisor Representatives provide Financial Planning and Wealth Management Services. Their team offers a personal approach to financial planning by finding out what their clients want and develop a strategy to make it happen. They help small businesses with their retirement plans, and families become retirement ready. Learn more at www.glebaandassociates.com or reach Jill Gleba directly at 248-879-4510.