What to do with inheritance?
From saving and spending options to questions about businesses, real estate, and tax, our guide explores what to do with inheritance.
The average American inherits $46,200.
Only 21% of households received an inheritance between 1989 and 2007.
Using inheritance for paying off debt, investing, or saving are all good options.
A financial advisor can offer guidance to ensure inheritance is used wisely.
According to the Federal Reserve, the average inheritance of most Americans today is $46,200 – and that’s if they inherit anything at all. A 2011 Bureau of Labor Statistics study found that, despite predictions, the World War II-era generation didn’t pass on their wealth to their Baby Boomer children. Instead, approximately only 21% of households received an inheritance or gift of assets between 1989 and 2007. If you receive money, real estate, a business, or other assets, it’s important to know how to make the most of it.
Learn more about what to do with inheritance.
What is an inheritance?
An inheritance is the assets that someone bequeaths to others after they pass away. These assets can be cash, bonds, stocks, or other investments, or items such as antiques, art, automobiles, a business, jewelry, or real estate. In some cases, assets pass to a spouse or children as heirs, while in others, individuals bequeath assets to people named as beneficiaries in their will.
Although the average inheritance in the US is more helpful than it is life-changing, it’s vital to know how to manage your money responsibly if you want to make the most of it. Always consult a trusted financial advisor for guidance on what to do with inheritance money.
What do people do with their inheritance?
There are several different things that you can choose to do with an inheritance. Some people take large inheritance advice from a financial advisor and invest the money, while others spend it in various ways, wisely or unwisely.
There are multiple things to consider when deciding what to do with money or other assets that you inherit from a loved one. Think carefully about your needs and goals, get expert advice, and consider factors such as debt repayment, savings, and investing in yourself.
Let’s take a closer look.
Don’t rush into decisions
First and foremost, don’t rush into any decisions. If you receive what is considered a large inheritance, you might be tempted to spend it irrationally. Take time to think about the best course of action.
Get expert financial advice
Ask a regulated financial advisor or financial planner for large inheritance advice if you aren’t comfortable making such a big financial decision. An advisor can help you to navigate your short- and long-term options and to draw up a comprehensive financial plan.
An advisor can also help you decide what to do with inheritance other than cash, such as securities. Let Unbiased match you with a financial advisor you can trust.
Pay off any debt
For some individuals, the best thing to do with the inheritance they receive is to pay down or pay off debts, especially high-interest debt such as student loans or credit cards. You can enjoy considerable relief if you can bring down or eliminate debt, especially in the current economy.
Make an investment
For other individuals, investing an inheritance is the way to go. Investing money is always a good idea as it could be a safer option than simply leaving it in a bank account where it doesn’t earn much interest and you can access it easily.
Like investing, saving towards goals or in preparation for unforeseeable events is a good option for anyone wondering what to do with inheritance money. A trusted financial advisor can explain different savings options and help you choose the best options for your needs and goals.
Invest in yourself
There’s also nothing wrong with investing in yourself and your loved ones or giving others better or more opportunities in life. However, it’s important to remember that money can’t buy happiness.
Should I consult a financial advisor or attorney when managing my inheritance?
Whether you should consult a financial advisor or attorney when managing your inheritance depends on how much money or the type of other assets that you receive. Consulting an advisor or attorney can be a wise decision if you receive a large inheritance.
What a large inheritance is depends on your circumstances. In 2019, the average inheritance of the wealthiest families was $719,000, while that of the poorest families was $9,700. A wealthy person might consider $719,000 to be small change, while $9,700 might change a poor family’s life for the better.
What are some considerations when paying off debt with an inheritance?
If you think that paying off debt is the best way to use your inheritance, there are a few things to consider. Evaluate your outstanding debts, paying attention to their interest rates. Think about paying off high-interest debt first and then creating a plan for eliminating your low-interest debts.
How long does it take to get inheritance money?
One of the most common questions around the subject is, “How long does it take to get inheritance money?” There is no standard timeframe.
A simple estate can be settled within six months, while complex estates with hard-to-value or many assets can take a few years to settle. The executor might be able to distribute specific bequests as soon as creditors have been paid. Other factors that can delay the process include estate tax returns, disputes with creditors, and dynamics within the family.
What states have inheritance tax?
Inheritance is taxable in some states. The six US states that have inheritance tax include:
How can I ensure that my inheritance lasts for the long term?
There are several steps you can take to ensure that your inheritance lasts for the long term. These include:
Create a budget
Draw up a financial plan
Manage your expenses
Continue saving money
Invest inheritance prudently
A well-structured financial plan is key to making your inheritance last. Ask a financial advisor to help you create the perfect plan for your needs.
What should I do if the inheritance includes valuable assets like real estate or a business?
If you inherit a business or real estate, think about it as if you were going to invest in it yourself. Remember that inheriting a business means dealing with day-to-day management, while inheriting real estate usually comes with maintenance and other issues.
Analyze whether keeping your inheritance as a business or real estate is aligned with your short-term and long-term financial goals. Seek professional advice on managing, maintaining, or selling those assets, especially if they require specialized knowledge.
The bottom line
An inheritance can be an unexpected windfall with the potential to change your life or a simple token of affection. Whatever you receive, it’s important to use it wisely. Think carefully about what to do with inheritance and whether you can use it to improve your life or the lives of your loved ones.
A financial advisor can help you to make the best decisions for your money. Let us match you with an SEC-regulated advisor for expert financial advice.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.