While many view receiving an inheritance as a life-altering windfall, research tells a different story. Studies indicate that approximately one-third of inheritance recipients see their wealth either decrease or remain stagnant after receiving their inheritance, suggesting they depleted the funds entirely. [1] Even more striking, among baby boomers who received inheritances exceeding $100,000, roughly 20% spent the entire amount. [2] However, with careful planning and strategic decision-making, you can make your inheritance last. Here's how:

 

Take a Thoughtful Approach

 

The first rule of managing an inheritance is to avoid rushed decisions. Consider these initial steps while developing your long-term financial strategy:

 

Secure Your Funds

- Place your inheritance in secure vehicles like savings accounts, money market accounts, or certificates of deposit

- Remember: FDIC insurance covers only up to $250,000 per depositor, per insured bank, for each account ownership category [3]

- Consider spreading larger amounts across multiple institutions for full FDIC protection

 

Establish Financial Safety Nets

- Create or bolster your emergency fund

- Aim for 6-12 months of living expenses in readily accessible accounts

- Consider debt reduction strategies for existing liabilities

 

Consider Marital Implications

Before combining inherited funds with marital assets, consider:

- Whether to maintain separate individual accounts or establish joint ownership

- The potential impact on asset division in case of future divorce

- State-specific rules about how inheritance spending affects its classification as separate property

- Consulting with legal counsel before making ownership decisions

 

Plan for Gifting

If you're considering sharing your inheritance:

- Understand potential gift tax implications

- Research income tax consequences of various gifting structures

- Consult professionals before implementing any gifting strategy

 

Enhance Your Retirement Planning

 

If you're still in the workforce, consider leveraging your inheritance to strengthen your retirement position. Financial experts suggest the following retirement savings milestones: [4]

- Age 30: 1x annual salary

- Age 40: 3x annual salary

- Age 50: 6x annual salary

- Age 60: 8x annual salary

 

Consider these retirement-focused strategies:

- Maximize 401(k) contributions, especially to capture employer matching

- Open or increase contributions to IRAs

- Be mindful that withdrawals from inherited traditional IRAs are typically taxable income

 

Build Your Professional Advisory Team

 

Successfully managing an inheritance often requires expertise in multiple areas. Consider assembling:

 

Financial Advisor

Your advisor can help:

- Analyze your current financial position

- Develop investment strategies

- Plan for major purchases

- Structure retirement savings

- Explore charitable giving options

 

Insurance Professional

An insurance expert can evaluate:

- Life insurance needs

- Long-term care coverage

- Liability protection requirements

- Asset protection strategies

 

Tax Professional

Your tax advisor will:

- Optimize cash flow

- Minimize capital gains impact

- Plan for income tax efficiency

- Structure strategic distributions

 

Estate Planning Attorney

Legal counsel can assist with:

- Creating or updating essential documents (wills, trusts, medical directives, powers of attorney)

- Minimizing estate tax exposure

- Developing gifting strategies

- Protecting assets from creditors

- Creating lasting family legacies

 

Moving Forward

 

With proper management, your inheritance can provide lasting financial benefits. However, creating an effective long-term plan requires professional guidance. At Slowik Estate Planning, we're here to help you navigate the complexities of receiving, growing, protecting, and eventually transferring your inheritance to future generations. Contact us today to get started.

[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

[4] How Much Do I Need to Retire?, Fidelity (Feb. 15, 2024), https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire