If you inherited wealth, what would you do with the money? Would you invest in real estate or financial products? Would you buy lavish gifts for loved ones? Would you go on a spending spree or take luxurious vacations?
Deciding what to do with inherited wealth is a problem many people wish they had. In reality, inheriting large sums of money often feels more like a curse than a blessing. Suddenly, people you haven't heard from in years want to reconnect. Relatives assume you'll be eager to share your newfound wealth and buy them whatever they desire.
Individuals who inherit family wealth should consult with a financial planner before ever spending a penny of their newfound wealth. Chances are heirs will have to pay inheritance tax if funds are not bequeathed via assignment of transfer-on-death beneficiaries or through a trust.
Another form of inherited wealth is through litigation settlements. This could stem from a wrongful death or medical malpractice lawsuit. I once knew a woman whose mother died due to medical negligence.
The mother had filed a medical malpractice lawsuit against the physician prior to her death. As the designated probate personal representative, the daughter continued to pursue the lawsuit as wrongful death after her mother died.
Sadly, the family had fallen apart during the mother's illness. Things had gotten so bad that the mother disinherited one family member from the Will. The daughter had to hire another attorney to help ensure award money was not provided to the disinherited relative.
In the end, she was awarded less than $100,000; hardly enough to compensate for the loss of her mother, breakdown of family dynamics, and three years of fighting in court.
While $100,000 isn't enough to retire on, it can go a long way toward improving personal finance. Regardless of whether unexpected wealth is acquired through inheritance gifting or lawsuits, it's crucial to develop an investment plan.
There are many opportunities for putting inheritance money to work for you. Common practices include investing in stocks, stock funds, bonds, and mutual funds. Individuals with minor children often establish college tuition funds. Some people invest in real estate or real estate investment trusts.
Working with a financial planner is the best way to minimize risk of financial loss when buying investment products. As we have witnessed in the past 3 years, the stock market can be a dangerous playground. No one wants to lose money, but there is always that risk when investing in corporate or real estate stocks.
Individuals with high level of debts may find it beneficial to pay off credit cards and high interest loans. Living a debt-free lifestyle is a goal many people aspire to reach. If you have opportunity to get out of debt due to inheritance windfalls it is an option worth considering.
Lastly, it's important to protect inherited wealth so money can be passed along to your loved ones. Engaging in estate planning strategies should be at the top of your financial planning priority list.
The basics of estate planning involve executing a last will and testament, healthcare proxy, and assigning power of attorney rights. Individuals with accrued wealth of $100,000 or more may want to transfer estate assets into a trust to reduce estate and inheritance taxes.
Acquiring inherited wealth can be a life-changing experience. To make certain it is a positive experience take time to become educated about various investment products and tax-saving strategies. To begin your journey we invite you to peruse our personal finance and investing article library which covers topics of real estate investing, annuities, stocks, bond, and tips for developing solid financial portfolios.