Dos and Don'ts When You Get an Inheritance

Seven years agomy husband's grandmother passed away and left him an inheritance of $20,000. My husband quickly decided he wanted to buy a boat with that money. I remember saying to him: "Whoadon't you think we should talk about this first? I can think of so many things to do with $20,000."

It quickly turned into a philosophical discussion about how we think about money. He felt that because this money came unexpectedly and was unearnedit was "play" money. I felt like the money could give us the opportunity to pay off debt or contribute to our two-year-old daughter's education savings account (ESA). Ultimatelyand even though it was a split decisionhe bought the pontoon boat.

My husband's inheritance is part of a larger societal trend. You may have heard the term the great wealth transfer. Between now and 2045the Baby Boomer generation is expected to transfer more than $53 trillion to their heirsaccording to Cerulli and Associates.

If you could receive an inheritanceit's important to create a thoughtful plan for how you will handle it. And if you have a partnerthat includes having a conversation with them to align your priorities. When you are in a partnershipI believe how you manage moneyincluding an inheritanceshould be a team decision. In most casesit tends to lead to better outcomes when you talk things through together.

Don't be impulsive. If you are fortunate enough to receive an inheritancebuy a nice bottle of Champagne and make a toast in honor of your benefactor. Then hit the pause button before you start spending. This is a time to reflect. While you are likely to be grievingdon't react emotionally with the money. Consider setting a time period before you start spending—like three months—to give you time to review your financial pictureprioritize your goalsand speak with professionals. You could hold the inheritance in a high-yield savings account as you take a few months to develop your plan of action.

Do review the current state of your financial picture. Do you have non-deductiblehigh-interest debt like on credit cards? If yesthink about putting credit card debt at the top of your list to pay off. Do you have an emergency fund to cover at least three months of essential living expenses? If notadd that to your list. The actions you take to ensure your current financial situation are in good order can help set you up for future financial success.

Do reassess your intermediate and long-term goals. Depending on the size of the inheritanceusing the funds strategically could help create the financial future you always imagined. Do you want to use a portion of it to help save for a child's educationor save for a down payment on a houseor pay down student loan debt? Are you contributing to your company's retirement plan at a minimum up to the employer matchor will this inheritance allow you to contribute the maximum allowed to tax-advantaged retirement accounts like an individual retirement account (IRA) or 401(k)? Add these items to your list.

Do talk to professionals. The larger the amount of money you inheritthe more helpful it can be to talk to a professional. Even if you consider yourself financially savvyit can be useful to have a second set of eyes on your finances. I am an expertand I use a financial advisor. They can review your overall financial picturehelp you think holisticallyand using the right investing vehicles. Talk with a tax advisor who can also help you understand the implications of any income or inheritance tax you may be subject to and offer insights on the tax implications regarding the sale of propertylike a family home. Everyoneno matter the amount of money in their bank accountcan benefit from professional guidance.

Do consider using a portion to honor the decedent. The passing of a loved one is an emotional timeand doing something special to honor that person's life can help in the grieving process. Explore ways you can use a portion of the inheritance to honor your benefactorwhether it's an experience in their memorylike a special family vacationor a piece of jewelry that signifies their life. Orin our casea boat.

This inheritance from my husband's grandmother has allowed us to create memories and a tradition of being together as a family. It represents summer and the joy and calm that comes with the kids not being in school. It has given us more fulfillment than I could have imaginedand that's the true gift left behind by my husband's grandmother.

Nowafter seven summers of enjoying our boat and appreciating the time we spend as a family at the lakeI know this was the right decision for us.