So You’ve Inherited Some Money, Now What?

So You’ve Inherited Some Money, Now What?

Many people speak wistfully of winning the lottery and what they would do with a sudden windfall. However, when that windfall is in the form of an inheritance, it may bring with it many unanticipated emotions and questions of what to do with an inheritance. Grief takes time and adding an inheritance makes it more complicated. It’s very common to still think of an inheritance as your loved one’s money. Inheritors also frequently speak of feeling alienated or isolated because their newfound wealth makes them feel guilty or afraid people will take advantage of them. Many feel intimidated and afraid of making mistakes with the money. After all, the person leaving the money did a lot of work to pick the investments and it may create feelings of disloyalty changing them.

Mental Accounting

Multiple studies have shown that many recipients quickly dispense their inheritance. This effect is related to what Nobel Prize-winning economist Richard Thaler called ‘mental accounting’. How we acquire money influences how we perceive it and how we use it. Thaler observed that people tend to treat money differently in a windfall situation as compared to the money they earn. This effect can lead to irrational decision-making when it comes to a sudden inheritance.

Accept and Grieve

The first step is to accept the inheritance and allow yourself to grieve without making any huge decisions. Processing the emotional impact of an inheritance tends to go through stages, very much like grief. Be kind to yourself and take time to remember and appreciate the person from whom you’ve received the inheritance. If you aren’t ready for any big decisions, it’s wise to put the money in a savings account and wait until you feel more settled before making those decisions.

Dreams and Goals

When you feel ready to move forward, consider your financial situation including debts, dreams, and goals. Consider how the inheritance may help you in these areas. Doing this work emotionally on the front end allows you to make decisions with intention and feel more confident.

Find a Financial Advisor in Austin

Find an unbiased third party that can help you talk through and prioritize your values and goals.  Build a financial plan you feel comfortable and confident about. Similar to talking to a therapist or church counselor, consulting with someone you trust may help you with any emotional bias you may have and help you clearly think and plan. A trusted advisor can also help you navigate the tax and legal implications of additional wealth. 

Honor and Enjoy

Taking the time to plan on the front end will help you get the full benefit of your newfound wealth.  And most importantly, remember, your loved one thought of you when they prepared their last wishes, including the inheritance you received.  It is meant to enrich your life and to fulfill your own hopes and dreams, and not that of someone else. You can honor your loved one by giving yourself permission to invest the money in a way that suits your individual plan, needs, and goals.

We are always here to help you with the topic of what to do with an inheritance and any other financial questions that you and your family may have. Please contact us with any questions.

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About Author

Kira Scott, CFP®

Kira joined ML&R Wealth Management in February 2020, bringing with her over 20 years of experience in the financial services industry. She has a passion for developing client relationships by delivering world-class service and assisting with the client’s long-term planning and day-to-day needs associated with the wealth management process.

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