How to Make Your Inheritance Last
Most people believe that receiving a large inheritance from a loved one would be life-changing.
How to Make Your Inheritance Last
Most people believe that receiving a large inheritance from a loved one would be life-changing.
At least one study, however, found that about one-third of Americans who had received an
inheritance eventually experienced a decrease or no change in their wealth after receiving the
inheritance, meaning that they most likely spent everything they received. 1 For baby boomers
who received an inheritance of $100,000 or more, nearly one in five spent it all. 2 If you are
preparing to receive an inheritance, there are several steps you can take to ensure that your
funds will last longer than a few years.
Do not make any hasty decisions. Once you receive your money, do not make any hasty
decisions about what to do with it. While you are crafting your long-term financial plan, consider
taking some of the following actions:
● Park the funds in a safe place such as a savings account, money market account, or
certificate of deposit. However, be aware that the FDIC insures these types of accounts only
up to $250,000 per depositor, per insured bank, for each account ownership category. 3
● If you do not already have an emergency fund, set one up to cover a minimum of six months
of expenses. If you already have an emergency fund, consider adding additional funds to
cover one year of expenses.
● If you are married, you will need to decide early on if you want to keep your inheritance in
your sole name in an individual account or place the funds in an account jointly owned with
your spouse. This decision largely centers on whether you want to protect your inheritance
from being considered a marital asset if you ever get divorced in the future. Also, it is
important to know that even if you put the inheritance in your sole name, spending money
from that account on joint or family expenses may render the inheritance account a marital
asset, depending on the rules in your state. You should consider seeking legal counsel
before you take custody of your inheritance.
● If you are considering giving some of your inheritance to your children during your lifetime,
you could invoke a gift tax or incur negative income tax consequences if the gift is not
structured properly. You should only proceed with gifting once you understand all of the
potential consequences.
● If you have significant debts or liabilities, you may consider using a portion of your
inheritance to pay the balance off or lower it.
1 Jeff Grabmeier, Most Americans Save Only about Half of Their Inheritances, Study Finds, Ohio State
News (Mar. 14, 2012), https://news.osu.edu/most-americans-save-only-about-half-of-their-inheritances-
study-finds---ohio-state-research-and-innovation-communications.
2 Id.
3 Deposit Insurance at a Glance, FDIC (Apr. 1, 2024), https://www.fdic.gov/resources/deposit-
insurance/brochures/deposits-at-a-glance.
Still working? Put away more toward your retirement. Some financial experts estimate that
in order to comfortably retire, you should have one year's worth of salary saved by the time you
are 30 years old, three times your salary by the time you are 40 years old, six times your salary
by the time you are 50 years old, and eight times your salary by the time you are 60 years old. 4
If you are working and are not contributing the maximum to your 401(k), bump up your
withholding, particularly if you are not meeting your employer’s match. If your employer does not
offer a 401(k), start funding an IRA. Note that if you have inherited a traditional IRA, any
withdrawals you make will be included in your taxable income.
Hire a team of professional advisors. You will need a team of professionals to help you
develop long-term plans to make your inheritance last. A financial advisor will help you analyze
your current finances and build a solid financial foundation that includes investments, credit and
debt management, college savings, and retirement planning. Your advisor can also help you
look into the future and plan for long-term financial goals, such as purchasing a first or second
home, purchasing an investment property, establishing funds for retirement, or starting a
charitable foundation. An insurance agent will help analyze the necessary types and amounts of
insurance (life, long-term care, and liability) to ensure that you and your family are protected. A
tax professional will help you analyze cash flow and create a plan to minimize capital gains and
other income taxes. We can help you create or update your estate plan (everyone needs a will
or revocable trust, medical directives, and a durable financial power of attorney), decrease or
eliminate estate taxes (federal and/or state), set up a gifting strategy, meet your charitable
goals, create a family legacy, and protect your inheritance from creditors, predators, and
lawsuits.
If your inheritance is large enough, it has the potential to last throughout your lifetime. But do not
attempt to create a plan to make it last as long as possible on your own. We are here to answer
any questions you have about receiving, growing, donating, protecting, and ultimately passing
on your inheritance to your loved ones.