Acquiring inherited wealth can be a blessing or a curse. People unaccustomed to having large sums of money often struggle with newfound wealth. It’s not uncommon for them to burn through money at rapid speed and end up back where they started.
While inherited wealth usually refers to money bequeathed through a decedent’s last will and testament, it can also arrive through jackpot lottery winnings, lawsuits, or investment practices. Individuals that win lottery jackpots can choose lump sum payout or enter into a structured settlement that provides annuity payments for 20 years.
Structured settlements are commonly used when individuals are awarded large sums of money through lawsuits. Litigants that receive monetary awards for injuries caused by accidents or medical malpractice often enter into structured settlements to ensure they receive sufficient income to cover living expenses and medical treatments.
When wealth is acquired through inheritance gifts it is vital to acknowledge that loved ones gifted the money to improve their relatives’ lives. It is not uncommon for grieving heirs to embark on spending sprees to soothe sorrows.
Instead of splurging inheritance money, recipients should consult with a financial planner before spending a dime. Professionals can offer guidance to help individuals put their money to work for them. It’s best to develop a diverse portfolio of investment products and engage in strategies to minimize capital gains tax.
Other good options for maximizing newfound wealth include paying off credit card debt and high interest loans; investing in residential or commercial real estate; or starting a business. It’s also smart to stash cash for unexpected emergencies.
Financial expert, Suze Orman recommends saving at least 6 months of income using high yield savings products such as U.S. Treasury bills and savings bonds, money market accounts, and money market mutual funds.
It’s smart to comparison shop high yield savings account and investment products. One trusted source is BankRate.com. This financial website offers information about interest-bearing checking and savings accounts, CDs and investments, credit cards, college finance, retirement planning, mortgage refinance, home equity loans, and taxes.
A final consideration of inherited wealth is learning how to protect funds for future generations. Inheritance money can be placed into irrevocable life insurance trusts, college funds, or savings accounts. The money can be passed along to children or grandchildren when they reach life milestones or gifted through a last will and testament or trust fund.
Having money can remove substantial stress from your life. Knowing money is protected provides peace of mind. Making smart financial decisions is essential for maximizing inherited wealth. While buying a luxury Sedan might make you feel better, it won’t increase your bottom line. Instead of car shopping, spend time learning ways to put your newfound wealth to work for you so you never have to worry about money again.
Suze Orman: How to Get a Higher Rate on Your Savings