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Cents and Sensibility Guy Steele |
Think ahead to avoid
problems receiving
inheritanceYou may have read about a vast "transfer of wealth" that is taking place as baby boomers start to inherit money from their parents. While it's true that the wealth being transferred is enormous -- in the billions of dollars -- it may or may not have much of an impact on your personal life.
In any case, if you get an inheritance, you'll want to make the right moves. Of course, you already know your situation and what you're likely to inherit, but it's useful to keep in mind that relatively few people in the "baby boom" category -- just over 17 percent -- have received any inheritance, according to a study by the AARP. And the same study showed that the average inheritance has only been about $48,000.
Still, even that amount of money could help you make progress toward your financial goals -- if you manage it carefully. Here are a few steps you may want to follow:
» See your tax advisor. Your inheritance may have tax implications, so, before you do anything with the money, see your tax advisor.
» Consider "parking" your money. When you receive an inheritance, it may be an emotional time. But you want to make financial and investment decisions with your head, not your heart. So don't rush into any decisions -- it won't hurt you to "park" your inheritance temporarily in a money market account or a certificate of deposit. Later, when things have settled down, you can decide how to use the money to your best advantage.
» Think twice about "splurges." Once you're ready to take action, you may be tempted to spend some of your inheritance on a new car, a down payment on a vacation home or some other major purchase. You'll want to evaluate these choices very carefully before signing on the dotted line. Ask yourself some key questions: Do I really need this purchase? Will this move add to my debt load? There's certainly nothing wrong with using part of an inheritance for something that you may have wanted, just make sure you don't set yourself back by making the purchase.
» Boost your savings and investments. If you were determined to cut down on debt before the inheritance, now you can do it even faster. But if you were already pretty much debt-free, and you wanted to help diversify your portfolio, now you've got more resources with which to work.
» Review your long-term strategies. If your inheritance is particularly large, you may want to re-evaluate all your long-term investment moves. For example, you may want to look at how you're allocating your investment dollars in your 401(k) or other employer-sponsored retirement plan. Or you may need to look at the percentage return you need to get from your investments each year to achieve your retirement goals. You may even need to consider additional "tax-smart" investment moves. In fact, with so many issues involved, you really should consult with your investment professional.
By following these suggestions, you can help yourself get the maximum benefit from your inheritance -- and, perhaps just as importantly, you'll be showing respect for the people who left it to you in the first place.
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Guy Steele is a financial planner and head of the Pali Palms office of Edward Jones. Send planning and investing questions to him at 970 N. Kalaheo Ave., Suite C-210, Kailua, Hawaii, 96734, or call 254-0688