Receiving an inheritance can present various challenges, especially when it involves a substantial influx of cash, investments, real estate, and valuable assets all at once. This can make it daunting to determine the most appropriate way to manage these newfound resources.
While these inherited assets are essentially similar to any other financial holdings, the experience can overwhelm some individuals. In such cases, it’s advisable not to hesitate in seeking guidance from a financial advisor, such as Lyfords. Effectively managing your inheritance is crucial, as it holds the potential to significantly enhance your financial situation.
Optimal strategies for handling your inheritance often include using it to settle outstanding debts, establishing an emergency fund, and making well-thought-out investments. When you inherit a mix of assets, such as cash payments, real estate, investments, or jewelry, setting priorities for their use becomes essential.
If you have any high-interest debts, like credit cards or loans, it may make sense to prioritize paying them off first. Don’t hesitate to reach out to us, and we can assist you in making informed decisions.
Why You Should Seek Financial Advice:
When you receive an inheritance, you might contemplate various actions, such as purchasing a new car, renovating your home, going on vacation, or gifting to your children to help them buy their first home. With numerous options available, seeking help from an experienced financial adviser is prudent, particularly when dealing with a substantial inheritance.
Property Relationship Issues:
It’s crucial to note that an inheritance is considered separate property, akin to a gift. However, if inherited assets or cash are commingled with shared relationship property, they may transform into relationship property. For example, if a cash inheritance is deposited into a joint account or used to acquire a jointly-used asset, it may fall under the purview of the Property Relationships Act.
You can keep your inheritance separate from your relationship by, for instance, setting up an investment portfolio in your name alone, provided no joint assets are added to it. Alternatively, you can enter into a contracting out agreement, often referred to as a “pre-nup” or “pre-nuptial agreement,” with your partner under the Property Relationships Act. This agreement specifies how the inheritance will be treated in the event of a separation and can be established before or during the relationship.
What to Do with Inherited Real Estate:
When it comes to inherited real estate, you typically have three choices: selling the property, renting it out, or residing in it. Each option carries emotional considerations that you may need to come to terms with. Selling the property might be the easiest choice in some cases.
What to Do with Inherited Investments:
Inherited investments could include shares, bonds, or an established investment portfolio. Managing these investments can be overwhelming, especially if you lack experience as an investor. This is where a financial adviser, such as Lyfords, can be invaluable. We would begin by assessing your current financial situation, including existing debts and investments, and then discuss your goals and objectives.
An essential aspect of investing involves identifying your risk-return profile and determining how your inheritance aligns with it or whether a restructuring is necessary. Consider factors like your future employment plans.
To make the most of your inheritance, after settling high-interest debts, consider investing in a well-diversified investment portfolio.
Mighty oaks out of little acorns
After paying off your debit don’t fall into the trap of buying that really expensive car or taking 6 months off to go on holiday. Be Prudent with spending. Remember your parents may have worked very hard to put aside some money for their future security. By investing a portion now this will result in a larger amount in the future which could provide a regular income. For example $100,000 invested today with a return of 7.2% net of tax and fees could grow to $200,000 in 10 years, $400,000 in 20 years or more depending on your risk/return profile. The S&P500 Index (top 500 companies on US share market) grew 9.8%pa over the last 23 years from 2000.
Should you invest your inheritance now or wait?
Is now the right time to be investing? Should I wait for share markets to improve?
If the inheritance is substantial there may be a case to dollar cost average into a diversified investment portfolio. Often a strong case can be made to just get on with it and invest now. Refer to our article on missing the best performing day.