5 Steps to Take If You Receive an Unexpected Inheritance

While navigating an unexpected inheritance can be overwhelming, with the right approach and guidance, it can also be an opportunity to enhance your financial future.

The Great Wealth Transfer is underway. Over the next decade, 15% of American adults expect to collectively inherit $16 trillion, according to the latest New York Life Wealth Watch survey and data from the New York Times.

Indeed, those who expect a substantial windfall in the coming years can educate themselves and prepare accordingly. Yet, for the many adults who aren’t aware of their family’s financial matters, receiving an unexpected inheritance can create more questions than answers.

For instance, how much should you spend? Which investments should you consider? And what should you do if loved ones ask for financial support?

Without a plan, it’s easy to overspend or mismanage sudden wealth, depleting your windfall as swiftly as you acquired it. However, with the right approach, you can avoid potentially costly missteps and make the most of your newfound wealth.

Here are five steps to take if you receive an unexpected inheritance:

#1: Allow Yourself Time to Process Your Emotions After an Unexpected Inheritance

First, it’s important to address the psychological aspects of receiving an unexpected inheritance. Oftentimes, it’s linked to the loss of a loved one—a profound life event that can bring about feelings of grief, overwhelm, and possibly even guilt.

Unfortunately, these emotions can cloud your judgment, negatively influencing your choices in ways that may not align with your best interests or long-term goals. In fact, this experience is so common that one psychologist coined the term “Sudden Wealth Syndrome” to describe the negative emotional and behavioral afflictions that often accompany a sudden windfall.

Before making any major financial decisions, it’s important to allow yourself ample time to grieve and process your emotions. This period of introspection can help you come to terms with your loss and approach your inheritance with a clearer mind.

Even if you feel emotionally grounded and ready to move forward, waiting at least a month to make any financial moves can help you avoid hasty decisions that you later regret. In the meantime, consider parking your inheritance in a savings or money market account, so you aren’t tempted to use it shortsightedly. Top of Form

#2: Assess Your Values and Financial Goals

An unexpected inheritance can significantly alter your financial trajectory, opening doors to possibilities that may not have been previously available. As such, it presents a unique opportunity to reflect deeply on what’s most important to you and your family.

For example, is it essential to provide the best education possible for your children? Or to secure a secure and comfortable retirement? Perhaps you dream of independence, using your inheritance to travel the world or to pursue other passions.

Taking the time to identify what’s most important to you can help you establish clear financial goals and allocate your resources in a way that reflects your priorities. By aligning your financial decisions with what you value most, your inheritance can pave the way for a secure and fulfilling life.

Bottom of Form

#3: Assemble Your Team of Advisors

As you consider how your newfound wealth can improve your daily life and financial outlook, it’s essential to understand the financial, legal, and tax implications of an unexpected inheritance. The following professionals can help you successfully navigate these intricacies and avoid costly mistakes.

Financial Planner

A fiduciary financial planner such as SageMint Wealth plays a key role in helping you understand how your inheritance fits into your overall financial picture. We can provide personalized guidance on investment strategies, help you manage any existing debts or financial obligations, and advise you on how best to use your windfall to achieve your financial goals.

Estate Planning Attorney

An inheritance can introduce a variety of legal complexities, especially if it involves real estate, a closely held business, or rare collectibles. An estate planning attorney can advise you on your legal rights and any obligations that may arise. They can also help establish trusts or other legal structures to protect your inherited assets and manage them effectively.

Tax Advisor

Inheritances can have significant tax implications, varying greatly depending on the type and amount of assets you receive. A tax advisor can help you proactively identify and implement strategies to minimize the associated tax consequences, ensuring that you comply with all tax regulations while maximizing the financial benefits of your inheritance.

#4: Create a Financial Roadmap

Once you have a clear understanding of your financial priorities and the right team of experts in place, the next step is to work collaboratively with your financial planner to create a roadmap for managing your inheritance. The key is to balance your immediate financial needs with longer-term goals and aspirations, so you can allocate your windfall accordingly.

For instance, if you have existing debts, you may want to devise a plan to pay off high-interest debt as soon as possible to reduce financial stress and improve your overall financial health. Your plan may also include strategies to secure your future and minimize your lifetime tax burden.

By developing a comprehensive financial plan tailored to your personal values and goals, you can make informed decisions with your wealth and preserve it long-term. This includes designing an investment strategy that aligns with your risk tolerance, time horizon, and financial objectives.

An effective financial plan serves as a living document that evolves as your life changes, so that your wealth continues to support your journey at every stage. As such, it’s crucial to schedule regular reviews and check-ins with your financial planner to ensure your plan remains current over time.

#5: Plan Your Legacy

Lastly, an unexpected inheritance isn’t just a windfall; it provides a rare opportunity to shape your family’s future and cement your legacy. Unfortunately, research shows that approximately 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third generation.

To ensure that your wealth serves not only your needs but also supports future generations, careful financial and estate planning is essential. Depending on the size of your inheritance and your objectives, your estate plan might involve drafting a will, setting up trusts, or establishing a family foundation.

Estate planning is also about ensuring that your heirs understand your wishes and are prepared to manage their inheritance responsibly. Developing a healthy family wealth culture marked by open and honest communication can help you preserve your newfound wealth for generations to come.

SageMint Wealth Can Help You Successfully Navigate an Unexpected Inheritance

Navigating an unexpected inheritance can be overwhelming. However, with the right approach and guidance, it can also be an opportunity to enhance your financial future.

SageMint Wealth is a wealth management firm for high-net-worth individuals, families, and business owners that is committed to growing wealth and investing in a better world. Our team can provide the support and expertise you need to secure your future and preserve your wealth long-term.

To begin your financial planning journey and make the most of your financial resources, please contact us.