A guide to stewarding your inheritance.

You received an inheritance. Now what?

How exciting to receive such a wonderful blessing! You might be extremely thankful and grateful for this thoughtful gift, but receiving an inheritance can be a bittersweet experience. While it may bring a sense of financial security and opportunity, it can also leave you feeling overwhelmed and unsure about how to handle the money in a good way. In this blog, we will address some common pain points associated with receiving an inheritance and provide possible solutions to help you make informed decisions and steward your inheritance wisely.

Did you recently receive an inheritance and you don’t know what to do with the money?

The first step is to take a breath and resist the temptation to make impulsive decisions. This is an exciting gift you have been given and you really want to steward it well. You will want to consider your financial goals, both short-term and long-term. It is advisable to seek the assistance of a reputable financial advisor who can help you navigate this potentially complex situation. Goodwin Investment Advisory is an example of a trusted firm that specializes in guiding individuals through inheritance management. At GIA, we have helped many families with their inheritance as you can see from one of our client stories, “Stewarding an Inheritance.”

Do you feel overwhelmed with all the options for investing your inheritance?

When faced with numerous options, it is crucial to assess your financial situation, risk tolerance, and long-term aspirations. A qualified financial advisor can analyze your unique circumstances and help you develop a customized investment strategy. Make sure they consider factors such as diversification, tax implications, and potential returns, ensuring your inheritance is optimally allocated to align with your goals.

Are you worried about the tax implications that come with receiving an inheritance?

Inheritances may have tax implications, depending on your state and the size of the inheritance. A knowledgeable financial advisor or tax advisor can guide you through the complexities of tax planning and provide strategies to mitigate tax burdens. They will help you understand any applicable estate taxes, inheritance taxes, income taxes, taxes on inherited IRAs, capital gains taxes, and gifting taxes associated with your inheritance, ultimately ensuring you make informed decisions while maximizing your after-tax wealth.

Estate taxes

Depending on where you live, estates exceeding a certain threshold may be subject to estate taxes. Take some time to research the specific regulations in your area or consult with a tax professional to determine if the estate from which you received your inheritance is subject to estate taxes.

Inheritance taxes

In certain regions or states, there may be inheritance taxes that apply to beneficiaries receiving an inheritance. These taxes are levied on the beneficiary’s share of the inherited assets. To understand if inheritance taxes apply in your situation, it’s a good idea to research your local tax laws.

Income taxes on inherited assets

When it comes to income taxes, you may need to consider any income generated by the inherited assets you receive. This can include things like rental properties, dividends, interest, or capital gains if you decide to sell the inherited assets. One key concept to understand is the stepped-up cost basis, which adjusts the value of inherited assets to the fair market value at the time of the original owner’s death. This adjustment can have an impact on capital gains taxes.

Retirement accounts and IRAs

If your inheritance includes retirement accounts or Individual Retirement Accounts (IRAs), there are special tax considerations to keep in mind. The rules surrounding inherited retirement accounts can be complex, and they depend on various factors like the type of account, your relationship to the deceased account owner, and the age of the original account owner at the time of their passing. You will want to determine the most tax-efficient options for managing your inherited retirement accounts.

Gifting and charitable contributions

If you decide to share your inheritance by gifting assets or making charitable contributions, it’s important to understand the associated tax implications. Gift taxes may apply if you exceed certain annual or lifetime gifting thresholds. On the other hand, donating to qualified charitable organizations can provide tax benefits, such as deductions on your income taxes. To ensure compliance and optimize the tax advantages of your generosity, it’s a good idea to consult with a tax professional.

Are you worried about how to honor your family with the money they gifted you?

While it is important to steward your inheritance wisely for your own financial well-being, it is also worth considering the impact you can make by being generous with your recently acquired wealth. Giving back to causes and organizations that are meaningful to you can be a fulfilling and purposeful way to honor your parents’ legacy and create a positive impact on the world. Here are some suggestions on how to be generous with your inheritance:

Charitable donations

Consider donating a portion of your inheritance to charitable organizations that align with the values and causes you are passionate about. You might even give money to an organization to honor the loved one who gave you the inheritance. You can engage with the organizations you’re considering to learn more about their work and the impact your donation can have.

Establish a family foundation

If you have a substantial inheritance, you might consider establishing a family foundation. A family foundation allows you and your loved ones to pool resources and make a lasting impact on society. It provides a structured and sustainable way to support causes over the long term. Working with professionals, such as estate planners or philanthropic advisors, can help you set up and manage a family foundation effectively.

Impact investing

Another way to be generous with your inheritance is through impact investing. Impact investing involves investing in companies, organizations, or funds that generate positive social or environmental impact alongside financial returns. By actively seeking out opportunities that align with your values, you can use your inheritance to support sustainable and socially responsible initiatives while potentially earning a financial return.

Support family and loved ones

While being generous with your inheritance doesn’t solely mean charitable giving, it can also involve helping your family and loved ones. Consider supporting family members who may need financial assistance for education, healthcare, or other essential needs. However, it is important to approach this with care and consideration, ensuring that your support is sustainable and aligned with your overall financial plan.

Remember, being generous with your inheritance is a personal decision, and the extent to which you choose to give is entirely up to you. You can navigate the options available to maximize the impact of your generosity while still ensuring your own financial well-being.

Did your parents have an advisor that you are not comfortable working with?

You might want to find your own advisor because it’s essential to work with a wealth advisor whom you trust and feel comfortable with. If your parents had an advisor that doesn’t align with your preferences, it’s entirely within your rights to seek your own advisor. Find an advisor who prides themselves on building strong relationships with their clients and providing personalized guidance. Someone who will take the time to understand your financial goals, risk tolerance, and values, ensuring a collaborative and tailored approach to managing your inheritance.

Receiving an inheritance can be a life-changing event that requires careful consideration and responsible stewardship. By seeking the guidance of a reputable financial advisor like Goodwin Investment Advisory, you can navigate the complexities of managing your inheritance, address your pain points, and develop a comprehensive plan that aligns with your goals, honors your parents’ legacy, and sets you on a path toward a prosperous future. This is an opportunity to make sound financial decisions that will benefit you and your loved ones for years to come.

All investment carries risk, and Goodwin Investment Advisory cannot guarantee investment performance. The above-listed ideas and suggestions are not intended to be an exhaustive list of all options, and the tax-related comments are not intended as tax advice. Your specific situation may require a different approach. Please consult with your CPA and investment advisor to get specific information regarding all tax matters, investment options and planning.
By Published On: August 31st, 2023

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About the Author: Tara Bruce

Tara Bruce
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