Deciding What To Do With An Inheritance?

Watch This Video To Avoid Making BIG Mistakes!


Presented by Irvine based Financial Advisor JP Geisbauer of Centerpoint Financial Management.


What to Do After Receiving a Large Inheritance: 10 Important Steps

***Transcript***

(Edited for grammar and clarity.)

Have you received a large inheritance and have no idea what to do with it? Or are you someone who's planning to leave a large inheritance and want to provide clearer instructions to your loved ones? In this post, I will discuss ten crucial things you should do if you've come into a large inheritance.

Stick around until the end because I'll also provide five helpful responses to give when people ask you for money—or worse, give you advice on how they would spend the money if they had inherited it. You'll definitely want to hear these.

Hi, my name is JP Geisbauer, founder of Centerpoint Financial Management. I'm a Certified Financial Planner™ professional and Certified Public Accountant, and this channel is dedicated to helping diligent savers maximize their lives and minimize taxes as they transition into retirement.

Inheritances Come in All Shapes and Sizes

Have you inherited a large amount of money or property? If so, it's important to take the necessary steps to preserve what you've received and maximize the positive effects it can have on your life and your loved ones. These ten things can help you do this:

1.      If You Receive A Large Inheritance, Get Closure

Human relationships can be complicated, especially when money is involved. Maybe there were unresolved issues with the person who passed away. Perhaps the death was sudden, and you didn't get a chance to say goodbye. Or maybe the relationship was strained, and now you're unsure how to feel about the inheritance.

Whatever the case, if you're feeling unsettled, it's essential to seek help processing these emotions. Consider speaking with a grief counselor to work through any lingering emotional issues. This will help you distinguish between the emotions tied to the person and the financial decisions you need to make. Avoid making emotional decisions that may lead to poor economic outcomes.

2.      If You Receive A Large Inheritance, Keep It Quiet

Simply put, don't talk about it. You don't need to hear what everyone else would do if they had the money you inherited, nor do you need to listen to people's hard luck stories about how a little money would turn their lives around. Also, avoid unsolicited investment pitches from distant relatives with the "next big idea" in cryptocurrency or artificial intelligence.

Keeping quiet about your inheritance will protect you from outside influences. The less people know, the less noise you'll hear, allowing you to process the event in your own time.

3.      If You Receive A Large Inheritance, Give Yourself Time

Inheriting a large sum can be daunting. While it may provide more financial flexibility, don't rush into making big decisions. If you're already comfortable, continue living the life you've been living and give yourself time to figure out your next steps. There's no need to rush.

4.      If You Receive A Large Inheritance, Understand the Tax Consequences

Most inherited assets receive a "step-up" in basis, which means that most tax liabilities are borne by the person who left you the inheritance. However, certain assets—like salaries, uncollected bonuses, rental property income, retirement plan income, and installment sale proceeds—may have specific tax implications for you.

Be particularly mindful of retirement accounts like IRAs. There are strict guidelines for how and when you must recognize the income from these accounts. I'll be releasing a video soon on recent IRS guidance for inherited retirement accounts, so hit "Like" and "Subscribe," and you will be notified when the video is released.

You'll also want to understand how any investment income from the portfolio will impact your taxes going forward. If you've inherited rental properties, familiarize yourself with how rental income will affect your tax return. The more you understand now, the fewer surprises you'll encounter at tax time.

5.      If You Receive A Large Inheritance, Fund Your Emergency Savings

One of the first things you should do is ensure your emergency fund is in place. An emergency fund is essential for covering unexpected expenses if you lose your job, get sick, or face another unforeseen event. Financial experts recommend having three to six months' worth of living expenses saved up, though some people now aim for as much as 12 months.

Use your inheritance to top off or fully fund your emergency savings, giving yourself some much-needed financial breathing room.

6.      If You Receive A Large Inheritance, Pay Off Debt

After securing your emergency fund, it's time to tackle any outstanding debt. Make a list of all your debts, including mortgages, car loans, credit cards, and student loans. Rank them by interest rate from highest to lowest and focus on paying off the debt with the highest interest first.

If you can eliminate all your debt, fantastic! If not, even reducing it will improve your monthly cash flow and leave a lasting impact on your financial well-being.

7.      If You Receive A Large Inheritance, Review the Portfolio

If you've inherited an investment portfolio, review it to ensure there aren't significant concentrations in one company or sector. For example, if the person who left you the portfolio worked for a tech company and invested heavily in tech stocks, you might need to diversify.

Remember the saying: "Concentration builds wealth, but diversification preserves it." Don't hold on to a concentrated position simply to avoid taxes. The person who left you the inheritance may have kept those stocks for the same reason. Now, with a step-up in basis, you may have the opportunity to diversify with little to no tax consequences.

8.      If You Receive A Large Inheritance, Incorporate the Assets Into Your Financial Plan

This inheritance may open new possibilities for you—whether it's starting a business, retiring early, or funding a dream vacation. Incorporate these assets into your personal financial plan, adjusting your cash flow, goals, and risk tolerance accordingly.

If the assets are investments, ensure the portfolio aligns with your long-term financial goals. Repositioning the portfolio to suit your needs will allow you to better manage risk and cash flow.

9.      If You Receive A Large Inheritance, Craft Your Legacy

Now that you've gone through the process of inheriting, you may have a new appreciation for what a legacy means. Consider how you want to leave your own legacy. Whether it's through gifts to loved ones or donations to causes you care about, this is your opportunity to make an impact.

Review or update your estate planning documents to ensure your wealth will be passed according to your wishes. Doing so now will ensure your legacy is well-crafted and secure.

10.  If You Receive A Large Inheritance, Get Financial Help

If all of this feels overwhelming, consider seeking help from a financial advisor. Given the complexity of handling an inheritance, you'll want to work with a Certified Financial Planner™, Certified Public Accountant, or Chartered Financial Analyst®—or someone who holds multiple designations.

Ensure the advisor is fee-only and a fiduciary, meaning they are legally required to act in your best interest. I made a video on the 10 Questions You Should Ask Before Hiring A Financial Advisor, which you can find linked at the end of this post.

Also, make sure your CFP® financial advisor is creating a comprehensive retirement plan that addresses all aspect of your financial life. I made a video on What Makes A Great Retirement Plan. Please watch to ensure your plan will be right for you.

5 Responses for When People Ask You for Money

Now, as promised, here are five polite responses to give when people ask you for money or advice on how to spend your inheritance:

1.      "The money I inherited is in a trust and can only be used for specific purposes."

2.      "I have to make this money last my entire life, so I can't risk giving any of it away right now."

3.      "I promised myself I'd be disciplined and not make any decisions until I've set my financial goals."

4.      "I'm working with my financial advisor on how best to manage these funds responsibly."

5.      Silence. If someone continues pushing after you've given your reasons, silence is your best response. You don't owe anyone an explanation. Politely leave the conversation or change the subject.

Conclusion

Inheriting a large sum of money or property can feel overwhelming, but by taking your time, understanding the tax implications, and seeking professional advice, you can turn this windfall into an opportunity to improve your financial future. Remember, this is your legacy to build—take control of it with confidence.

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About the presenter:

JP Geisbauer is a Certified Public Accountant, a Certified Financial Planner ®, and the founder of Centerpoint Financial Management, LLC, a financial planning, investment management, and income tax planning firm located in Irvine, CA. JP Geisbauer is dedicated to helping California-based business owners and executives transition into retirement. He has been quoted in many news outlets including Forbes, Newsweek, US News & World Report, MarketWatch, YahooFinance, CNN and NerdWallet.

Need help with your transition into retirement? Schedule a complimentary 30-minute call with JP here.

Disclaimer:

This article is for general information and educational purposes only. Nothing contained in this article constitutes individual financial, investment, tax, or legal advice. Before taking any action on any topic discussed in this article, consult with your own financial planner, investment advisor, tax professional, and/or attorney for advice on your specific situation.

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