Investing Your Inheritance

What should you do when a sizeable amount of money comes your way in the form of inheritance?

Your first step should be meeting with an attorney who is also familiar with business and family law. Preferably, this attorney should already be working with your family. Whether your attorney helped your relative write the Will, or settle the estate – an attorney familiar with the values of the deceased can help point you in the right direction.

Life insurance and other forms of inheritance offer many children and spouses a chance at financial freedom.

Investing Generational Wealth

By taking care of debts, mortgages, outstanding loans, and anything else that keeps you from flourishing, you’ll feel a renewed sense of freedom to live life on your own terms. The approximate 14% APR can accumulate to an astronomical amount of debt, so it’s prudent to get that out of the way as soon as possible.

Besides paying off your debtors, there are a few other investment options to consider after the receipt of an inheritance, including the examples listed below.

Investing Your Inheritance

When you receive a large sum of money following the death of a loved one, there are many options that fall into your lap.

It’s very easy to spend it all, however, if invested properly you’ll feel the support of that loved one for years to come. Within a couple of months, you may increase your net worth tenfold.

This presents an incredible opportunity that can also be overwhelming. It’s much easier to squander un-earned income, but with these few investments, you can compound the wealth that has been passed down so that it continues to provide for your family for years to come.

1) Venture into real estate.

If your history of short-run investing isn’t very good, real estate is a more reliable way to go.

Homeownership, property management, and property flipping are viable ways to maintain the value of your inheritance over time. Real estate presents countless opportunities each decade, and although we have seen turbulence, the vale of land and property only seem to be increasing over time.

A good buy can bring you compounding returns when it comes to real estate. It may take a while to get the hang of it and find quality agents to represent your properties, but this investment is sure to pay off. If part of the inheritance you received was a piece or multiple pieces of real estate, don’t be in a hurry to sell.

If you can generate recurring income in the form of rent, it’s wise to keep that tap open. Rather than selling your newly acquired property for a single payout, keep the property and rent it out so that you can then pass it down to your children.

2) Stock & Mutual funds are a safe bet.

These come in four varieties. Generally speaking, there are broad categories these will fall into:

  • those that invest in stocks (called equity funds),
  • bonds (fixed-income funds),
  • short-term debt (money market funds),
  • or both stocks and bonds (balanced or hybrid funds).

Every mutual fund is designed to spread the risk and diversify your portfolio while capturing wider market gains.

Varieties including international, aggressive growth, growth and income, and grow allow most investors all the diversification needed to accumulate wealth over time. Spread out the inheritance money across all four divides to avoid having all your eggs in one basket.

It’s best to talk to a financial advisor for help with an investment strategy like this.

3) Finance the kids through college.

You can spare your children the burden of student loan debt by putting them through school with part of your inheritance money.

Sure it might seem like a drag, but the goal of leaving offspring in a better position is how your deceased relative was able to gift you an inheritance.

Tuitions fees are steep and they only seem to be getting more expensive each year. Taking care of this aspect of a child’s life is a rare gift that enables your children to start life with a clean slate. Adulthood can be turbulent enough without carrying large amounts of debt into every endeavor.

4) Open up a savings account.

A rainy day account is an excellent option as your money will always be on the right side of a bank’s interest no matter how low the interest might be.

Be sure to compare percentages before settling on any particular bank. While determining whether the bank you choose suits your lifestyle and preferences, also consider the bank’s history and how much money you plan to keep in the account.

What’s more, you could also channel some of that money into a pension or retirement account which will come with signification tax reductions.

Be Sure to Do Your Research

The Federal Deposit Insurance Corp., or FDIC, insures checking, savings and money market accounts, and certificates of deposit, for up to $250,000.

However, there are some stipulations.

Not every account at every bank is covered for that amount. The way accounts are structured could put you at risk for losing the bulk of your savings if the market crashes. Alternatively, you can set up accounts in a way that they will be insured for much more than $250,000.

Single vs Joint Accounts

The maximum amount of coverage for a single account at one bank is $250,000. Further, all the “single accounts” at the same bank are added together. This means if you have $100,000 in one account and $500,000 spread across three more accounts – you would only make out with $250,000.

With a joint account, each person on the account receives $250,000 in insurance for each account. In addition to that, each person receives $250,000 in insurance for individual accounts at that bank.

You can raise coverage limits a bit higher with other types of accounts at the same bank. These types might include:

  • Certain retirement accounts.
  • Revocable trusts.
  • Irrevocable trusts.
  • Employee benefit plan accounts.
  • Corporation, partnership, and unincorporated entity accounts.
  • Government accounts.

Should you worry about taxes?

It’s unlikely that Uncle Sam will be poking around for a share of your inheritance in terms of federal taxes.

That is – unless the inheritance is pretty massive (more than $11.18 million). You also will not need to worry about inheritance tax because only a handful of states actually collect it.

The State of Florida doesn’t have a death tax, which is good for those inheriting assets in Florida. However, qualifying Florida estates are still responsible for paying the federal estate tax (there is no federal inheritance tax). To the extent, if the estate’s assets exceed the $11.18 million exemption (as of 2018), an estate can be taxed up to 40%.

For those who are writing a Will, and planning to pass down more than $11.18 million in assets, contact a probate attorney immediately to begin passing your estate down before you die as to avoid this tax.

Even if it’s too late, particular beneficiaries will prove an exception. However, a visit to a probate attorney is necessary to establish if you’re in the clear.

A large savings account or an income-generating inheritance can be a different story.

You might have to foot capital gains upon acquisition of the estate. You can learn about what you need to pay, or if you have to pay anything for that matter, by talking to a tax attorney. We can advise you in whichever direction your estate requires in a simple phone call.

Investing Wealth Passed Down

Before you do anything, though, you should first of all do nothing.

Give yourself some time to mourn and clear your head so that you can make logical decisions. Losing a loved one can take a toll on your mental health. Ultimately this can affect how you invest and the windfall that follows. A bad inheritance investment can make the loss even greater, so don’t rush into anything in the weeks after your case is settled.

Once you’re ready to take the next steps, it’s best if you talk to a financial planner for an expert’s perspective on wise spending.