Buzz
What would your first move be if you suddenly came into a large inheritance? If your goal is to manage it wisely, the prudent response is to do absolutely nothing —at least for the first year.
As Susan B. Garland highlights in The New York Times, many people quickly deplete their inheritance by indulging in immediate pleasures and neglecting to plan for taxes. She references Susan Bradley, the founder of The Sudden Money Institute, who recommends waiting up to a year before using any of the inheritance funds.
Ms. Bradley advises that new heirs take a ‘decision-free period’ lasting several months to a year to carefully consider their choices. During this time, she recommends assembling a group of experts, including a financial adviser, an accountant, and a lawyer, to help guide the process.
Until you have a clear plan, experts recommend that heirs place any cash or life insurance funds in a federally insured bank account, avoiding joint accounts with a spouse.
Indeed, you read that correctly—experts advise keeping your inheritance in an individual account, not a shared one with your spouse. (Maintaining your inheritance as separate property increases the chances of it being considered ‘separate property’ in case of a divorce—although it’s important to consult a lawyer for all the specifics.) Store your inheritance somewhere only you can access, and refrain from touching it.
Waiting a year not only keeps you from spending your inheritance on short-term indulgences, but also provides you with a clear answer for anyone who might expect you to assist them financially now that you’ve come into money. No, you cannot help your friend or cousin (or spouse or child) with extra cash for their new business venture or whatever else they’re working on. You won’t be spending any of your inheritance this year.
After the year has passed, and you’ve processed both the emotional impact of your loss and the implications of your inheritance, you’ll be in a better position to make considered decisions about how to manage the funds. You’ll be able to think clearly, without the influence of grief, excitement, or other emotional reactions, and have had time to consult with accountants and lawyers about all the possible options and consequences tied to your inheritance.
So, resist the urge to spend your inheritance right away. Even if you think using the inheritance to address an immediate financial need, like paying off debt, is the best choice, give yourself several months to consult financial experts and fully understand everything related to inheritance money—from taxes to marital property laws. This approach ensures you don’t waste a single penny of the inheritance entrusted to you.
