Benjamin Franklin once said, "In this world nothing can be said to be certain, except death and taxes.” As a Financial Advisor, part of my job is to help clients navigate both—especially when they intersect.
If you're receiving an inheritance, you're likely facing an emotional and administrative burden all at once. It’s a difficult mix: mourning a loved one while filling out forms, getting signature guarantees, and coordinating with your financial institutions and advisors. And while it might not feel like the right time to think about long-term plans, how you handle an inheritance now will shape your financial future for years to come.
Unfortunately, statistics show that many inheritances are completely spent within just two years. However, this doesn’t have to be the case for you. To better utilize the gift you’ve been given and extend the legacy of your loved one, here are seven practical steps to take:
1. Take Time to Grieve, and Start Getting Organized
Unfortunately, there’s often little time to fully grieve before the paperwork begins. While it’s okay to pause major financial decisions, you’ll need to begin gathering documents, understanding what’s being inherited, and ensuring nothing slips through the cracks. Give yourself grace in this period—and know that you're not alone in managing it.
It’s okay to ask for help during this process and delegate tasks, easing your burden and giving you more time and space to grieve.
2. Set Goals
Before you make any major financial moves with your newly acquired inheritance, ask yourself: What do I want this inheritance to help me accomplish?
This could be eliminating debt, buying a home, funding a child’s education, giving charitably, or achieving financial independence. Set both short and long-term goals, and let your goals—not emotions—guide your decisions.
3. Create a Plan
After setting your goals, it’s time to create a clear, intentional plan of how you will use your inheritance to accomplish your goals.
A strong plan reduces the risk of impulse spending and ensures that this financial gift supports your values and long-term security. This is also where working with a trusted advisor becomes incredibly valuable. Let their experience and expertise in this area help you create the right plan for your goals.
4. Use the Bucket Strategy
We often talk with clients about using a Bucket Strategy to help organize and deploy inherited funds. Think of it as placing money into different buckets, each serving a specific timeframe and purpose.
- Bucket 1 – Immediate Needs (0–6 months)
Bucket 1 contains cash you can access quickly. This includes checking and high-yield savings accounts. This should include enough money to cover daily expenses and unexpected emergencies—typically around six months of spending.
- Bucket 2 – Short-Term Goals (6–18 months)
This might include funds in CDs, short-term bonds, or Treasury bills. These are low-risk options to preserve capital while keeping it accessible within a year or so.
- Bucket 3 – Intermediate Goals (1–5 years)
Depending on your goals, this could include municipal bonds or a conservative portfolio that balances risk with some growth potential.
- Bucket 4 – Long-Term Growth (5+ years)
Here, equities and diversified investments come into play. This bucket is designed to grow over time—making your inheritance work for you well into the future.
This approach allows you to allocate funds intentionally and makes it easier to make level-headed decisions during uncertain markets. You're not just buying stocks—you're becoming an owner of great companies, with a plan to withstand volatility.
5. Understand the Tax Impact
Inheriting money—especially in the form of retirement accounts like a beneficiary IRA—can come with tax implications. Required minimum distributions, withdrawal rules, and potential income tax can affect what you ultimately receive. It’s not always possible to avoid taxes entirely, but with proper planning, you can minimize the “tax drag” and alleviate the burden for your own heirs down the line.
6. Deploy Cash Intentionally
Many inheritors find themselves with a sudden influx of cash—and no clear plan for it. That’s where discipline and strategy are key. Once you’ve covered your short-term needs and established an emergency fund, the next step is to intentionally deploy the rest of your cash based on your goals and timeline.
7. Don’t Rush—But Don’t Wait Forever
It’s okay to pause, reflect, and think. But leaving inherited money sitting indefinitely without a plan means you’re missing out on growth, protection, and purpose. Striking the balance between caution and action is essential.
Need Help With an Inheritance? Let’s Talk.
Receiving an inheritance is often bittersweet. It’s a generous gift, born from loss. The best way to honor that gift is to handle it with care, intention, and purpose.
If you’ve received—or expect to receive—an inheritance and want to ensure you’re making wise decisions, I’m here to help. You can always reach me via email at ryan.oconnell@bloomingtreewm.com, or call our office at 309-300-2747.
Disclaimer: Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.