Private Client Services

4 Tips for Managing a Large Inheritance

Posted on December 28, 2020 by

Casey Haggerty

Casey Haggerty

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What to Do with a Large Inheritance

Receiving a large inheritance may sound appealing to most, especially in an era where many have gone through two large financial depressions. However, there are many things that need to be considered. It is critical that the beneficiaries understand what an inheritance entails, how to protect assets, and how to navigate any resulting liabilities. From assembling a team of experienced professionals to help them maximize the inheritance to handling tax-related responsibilities, beneficiaries must be diligent and proactive to get the most out of their newfound wealth. Here are some important tips to consider when receiving a large inheritance.

1. Be Wary of the Taxes

Upon receiving a large inheritance, it is instinctive for many to automatically start thinking about all the things it could be used for, such as paying off a mortgage or spending on a lavish vacation. However, depending on the amount and type of assets inherited, there are also taxes to consider. Specifically, inheriting property can have different consequences than inheriting other assets such as retirement accounts. Estate taxes and inheritance taxes need to be paid before assets are distributed to the beneficiaries. Where beneficiaries reside as well as where the decedent lived can also have an impact on what types of taxes need to be considered.

2. Develop a Plan

While dreaming up what to do with a large inheritance can be exciting, establishing a plan is a good place to start. Since beneficiaries can be at various stages of life, the best use of the inheritance could be to pay down debt, establish an emergency fund, cover education costs, or invest for the future. Some may also choose to protect the assets so they can pass them along to future generations. It is important to remember not to spend money that has not been received yet. Even after finding out what each beneficiary’s share will include, it may take months or even years for those assets to get transferred into the beneficiary’s own name. As such, it is not wise to spend a single dollar until you know when the transfers will be completed.

3. Build a Team of Trusted Professionals

Regardless of how to use the inheritance, building a team of financial professionals, including a CPA, investment advisor, and attorney, can help make sure that every detail is thought through in an unemotional way. A CPA can help you navigate the tax implications of the inheritance, avoid any unnecessary penalties, and understand the income tax consequences that will result from how the inheritance will be held and invested or utilized. A trustworthy financial planner and attorney are key to ensure you don’t miss any steps in protecting assets. These professionals can help with anything from how assets should be titled to the best investment strategy to accomplish a beneficiary’s financial goals. If creditor protection is a key factor, asset protection trusts and LLCs could be useful tools that a qualified attorney can recommend. Often, contacting the right professionals prior to receiving an inheritance is important to make sure you have a plan in place as some things cannot be undone after the inheritance is received. For example, if disclaiming certain assets is the right move, a discussion should be had prior to receipt of the asset in question to avoid the unintended consequences of transferring the asset after the fact.

4. Take it Slow

Regardless of the form of an inheritance, whether it be real estate, marketable securities, cash, or other valuables, it is essential to take the planning process slowly. Building a team in advance to help make the proper plans is typically the first step that will help to remove the added stress that comes with inheriting substantial assets. Money may not be able to buy happiness, but a large inheritance can be life changing if handled properly.

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If you need assistance maximizing your inheritance, protecting your assets, or navigating tax-related responsibilities, Clayton & McKervey can help. Contact us today to learn more. We look forward to speaking with you soon.

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Casey Haggerty

Senior Manager, Private Client Services

Casey supports high net worth individuals by providing tax and estate planning guidance through the firm's private client services group.

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