I Received an Early Inheritance — Now What Should I Do?

Typically, an inheritance is received after a loved one passes away, and this can be a difficult time for any beneficiary. While you’ve received a generous gift, you’re also grieving the loss of a loved one. However, receiving an early inheritance is a different situation. Parents or grandparents may give an early inheritance to their children or grandchildren to reduce the size of their estate, especially if they are concerned about estate taxes.

If you receive an early inheritance from a family member, it may come with strings attached. Keep an open line of communication about what their expectations are. Ask if they have specific hopes for their wealth, such as funding their grandchildren’s college education. At the same time, recognize that once a financial gift has been transferred to you, it’s yours — and you can utilize those funds as you see fit.

Inheriting a House

Have you inherited a home? You have three options: live in it, sell it, or rent it out to a tenant. Each choice has its advantages. If you rent out the house, you may receive an extra stream of income. If you move into the house (and it’s paid off), you can eliminate mortgage debt. If you sell the house, you could generate a significant amount of cash that you could then invest or save.

However, each option has its downsides, too. If you sell the home immediately, you’ll need to pay capital gains taxes. Plus, any house comes with maintenance and upkeep costs, especially if it’s an older family home that has been passed down to you. You may not want to deal with the extra time and money required to be a property manager. If you don’t want to take on the extra costs of property taxes and maintenance, you may be better off selling the home. A Certified Financial Planner(™) Professional can provide personalized recommendations based on your circumstances. During this important decision time, consider working with a fee-only fiduciary. Websites such as NAPFA or Fee-Only Network may be helpful resources to start your search.

NAPFA: The National Association of Personal Financial Advisors (NAPFA) offers an online search tool for advisors, including a search filter for “LGBT Couples and Families.”

  • FeeOnlyNetwork.com: This search tool lets you find financial advisors that are verified to be independent, fee-only, and fiduciary. Advisor profiles list their specialties and the types of clients they specialize in.

Investing An Inheritance

Hopefully, you’ve already begun saving for retirement. If you’ve received an early inheritance, a great way to utilize some of those funds is by building up your retirement nest egg. If you have a traditional 401(k) account, you can contribute up to $20,500 of your compensation, per the IRS contribution limits for 2022. If you’re over age 50, you can make an additional “catch-up” contribution of $6,500 if permitted by the plan.

If you have additional funds after maxing out your retirement contributions, you can put that money into non-retirement accounts such as an individual brokerage account that can hold investments, such as:

  • Exchange-traded funds (ETFs)
  • Index funds
  • Mutual funds
  • Real estate investment trusts (REITs)
  • Traditional stocks and bonds

If you aren’t doing so already, now is a good time to consider working with a fee-only fiduciary financial advisor who can help you choose investments and tailor your portfolio based on your values and goals. They can also help you understand the tax implications of your inheritance.

Choose a Trusted Financial Planner at Moneta

Even a small early inheritance can create big changes in your financial plan. A financial advisor should help you feel empowered, not overwhelmed. The Hadary Team at Moneta excels at helping clients see the big picture and take advantage of the financial opportunities that come their way. Moneta is an independent, objective, fee-only registered investment advisor (RIA) with local teams that provide boutique service.

To learn more about how Erin Hadary and her team can aid in planning for an inheritance you anticipate, connect with us.

© 2022 Moneta Group Investment Advisors, LLC is an SEC-registered investment advisor and wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

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