At first, learning that you’ve received or are about to receive a large inheritance from an estate probably sounds too good to be true. You may feel happy and relieved about not worrying about paying the bills or finally having financial security.
However, receiving a large inheritance comes with a great deal of responsibility. After your initial excitement subsides, you may quickly feel overwhelmed when faced with decisions on where to place the money, what to do with it and any tax implications.
Do nothing, at first
One of the most important things to do after receiving your inheritance is to think carefully about what you want to do with it. You will almost certainly be tempted to use it on things you’ve always wanted, such as a new house, car or a long-awaited vacation.
While you may eventually choose to use some of your inheritance on those things, it is best to place the money somewhere safe and secure before deciding how to use it. A credit union or federally insured bank is a good option.
You likely wouldn’t be receiving your inheritance unless someone had passed away, which can cloud your judgment. Give yourself time to heal and grieve for your family member or loved one before deciding what to do with the money.
Pay off debts
Once you are ready to begin making decisions, paying off any outstanding debts is a very good idea. Prioritize your debts. High-interest credit cards should be paid off first, while a home mortgage or other low-interest debt should be paid off next.
If you find yourself with money left over after you’ve paid off debts, investing is usually a smart option. Since you may be new to investing, working with a financial advisor on the best ways to invest can help.
Consider tax implications
You must also consider any tax consequences. While you may not have to pay federal or state estate taxes, you may have to pay taxes based on the type of inheritance you received, as certain types of assets received through inheritance require paying taxes.
Estate planning attorneys can provide valuable advice on the best way to manage your inheritance and help you make the best decisions.