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Marc A. Hebert's Money Sense: You've just received a large inheritance. Now what?

By MARC A. HEBERT
September 29. 2018 6:46PM




According to a 2015 survey by HSBC Bank, American retirees expect to leave an average inheritance of almost $177,000 to their heirs.

If you are or anticipate being among the recipients of such a bequest, here are some tips to help you manage your inheritance.

. Develop a strategy.

Take time to breathe. Understand just how much you have inherited and the form that your inheritance is going to take. Did you inherit a portfolio of stocks? Maybe it is a rental property? Is it an IRA? Each form has different implications.

Take time to review your financial goals and how your inheritance might help you reach them. Are you on track for retirement? How high is your debt?

Developing a budget to see where you spend your cash currently is a great start. Sometimes the best first step is to put the money in a bank account until you have your situation sorted through.

. Consider paying down your debt. This is the time to review your debt. Near the top of the payoff priority list should be high interest-rate credit card debt. If your mortgage rate is relatively low, it may not be worth paying off as the money may earn more if invested.

. Fund an emergency account. The most commonly mentioned amount is at least three to six months of living expenses that you could access at a moment's notice. You might need more if, say, your salary is based off commissions or if you are self-employed and your income isn't necessarily steady.

. Make savings a priority. This could be for retirement, education or other life expenses. Review your goals to determine the best area in which to start saving.

. Don't rush to spend big. While purchasing a luxury sports car may be tempting, the money might be better saved for other goals. Achieving financial independence is a good one. The trick is to avoid an irrational decision that you might regret later.

. Develop an investment strategy. Consider the time you have until you will use the money. For example, retirement may be a longer term goal while education money may be needed five years down the road. Your appetite for risk is another factor. The point here is to make the money work for you without unnecessary stress.

. Educate yourself. There is plenty of information on the web and at the bookstore. Given this, read widely before making any choices, whether they involve which mutual funds to buy or how you would like to handle your IRA distribution.

. Have a tax plan. Your inherited funds could open up tax opportunities you may not otherwise have had. For example, you might be able to increase your contributions to your workplace retirement accounts, as you will have other funds to live on. You might be able to make Traditional or Roth IRA contributions. Your investments may generate interest, dividends and capital gains, all of which will impact your tax picture.

. Address your past. If you have developed some bad financial habits that have caused you issues in the past, now is the time to seek competent help. An inheritance is a great opportunity to set your financial future going in the right direction. Past bad habits shouldn't get in the way.

. Splurge thoughtfully. Though we did say don't rush to spend, it is OK to have a little fun. Reason and moderation are the key words here.

. Get help. Consulting a financial planner, investment professional, lawyer or accountant can help you begin a plan and monitor it down the road. You will have a better idea of your options, entire financial picture and your goals. Having a team of people can help you now and going forward.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.


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