A large inheritance or a financial settlement can be both a bonus and a burden. It’s a bonus because the money could come in handy for boosting retirement or education savings, upgrading a home, or quality-of-life events such as travel. The burden is because a large amount of money imposes certain responsibilities on the recipient such as taxes, investments, and the many choices involved in managing the money. Experts offer a number of tips for recipients of large funds. These include:
Taking your time. If you inherit a large amount of money or receive it in a settlement, take your time in deciding what to do with it. Inheritances often involve grief in mourning a loved one who has passed, and settlements often happen after a life-changing event such as an accident. Don’t make any fast decisions and be certain to consult with a professional financial advisor. Initially, it’s wise to park the money in a federally insured bank or credit union, which will allow you to store up to $250,000 per depositor. You can arrange for more coverage by setting up several different types of accounts.
Choose a financial advisor carefully. Different types of estate planners will have different responsibilities when it comes to preserving your money. Some advisors may try and steer you toward certain types of investment in order to maximize their own commissions. Consider using an independent RIA, who is not limited in what they can offer in constructing a bespoke plan that is truly tailored to your needs. This way, there should be no conflicts of interest arising on the planner’s part.
Seek help for non-cash assets. If you inherit non-cash assets such as securities, you may find they’re not a good match for your investment style or your goals. Seek assistance in determining whether it’s a good idea to keep them or sell them and turn them into something else.
Debts or investments? Many people use inheritance or settlement money to pay off debts. And while this makes sense for high-cost debts such as credit cards or student loans, it may not make financial sense to pay off a low-rate home mortgage, for example. With an experienced financial advisor, you can make some cost-benefit comparisons to determine whether the money will serve you better be used to pay off loans, or investing in high-yield products.
Tax implications. There are a variety of tax implications depending on the source of the inheritance or settlement, and the amount of money involved. For instance, some lawsuit awards or settlements are not taxable, and some are. If you’ve inherited a non-qualified annuity, your tax liability will be vastly different than an inherited IRA, or real estate. A financial advisor can help you understand how to configure your inheritance or settlement best to reduce your tax liabilities.
At Toomey Investment Management, Inc. (TIMI), our business model is designed to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capture money from prospective clients but much less on service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully, keep in touch, and return your calls and communications quickly, so you can count on us. We will work effectively to optimize your financial situation and solve your problems. Call us at 203-949-1710 or visit our website for more information.