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The Other Side of the Coin: Managing Your Inheritance Wisely

As estate planning attorneys, we spend most of our time talking about how to structure an inheritance: putting the legal framework in place so that one can be confident that their wishes will be carried out. Professionals are eager to give advice about use of wills and trusts to save on taxes while passing on assets.

With so much focus on this aspect of the inheritance, far less guidance is given to the beneficiaries. What should you do after you receive an inheritance?

WMUR News published a helpful article last week that offers a good starting point on that very topic. The story runs through some basic tips about the next steps after receiving an inheritance. It is a worthwhile read both for those who expect an inheritance as well as for those who expect to leave one. After all, it is always possible to have discussions with family members about how you hope they use any assets they receive. In fact, the entire structure of an estate plan may change depending on how one hopes their generosity will be used by the next generation.

The story points to a Metlife study which suggested that about two-thirds of all “Baby-Boomer households” will receive some kind of inheritance. The median amount is around $64,000, but many families will receive more much or considerably less.

One of the seven tips outlines in the advice article is an obvious one: review your overall financial goals before deciding what to do with the windfall. Your current situation will obviously affect the options. Do you have many short-term goals (i.e. buying a house) or is more focus on long-term investments? It is important not to rush into any decision. There is no harm in waiting a short while while evaluating your options. At this time, it is helpful not to “co-mingle” funds with a spouse as the inheritance is likely considered separate property so long as it remains separate.

Many of the tips fall under the general theme of using the funds prudently, instead of spending it on relatively trivial matters. For example, paying down debt or creating an emergency reserve fund are usually smart choices for an inheritance.

One unique reminder is that shortly after receiving an inheritance may actually be a good time to tweak your own estate plan. Beyond being a basic reminder to get your own wishes in place, the finances need to be included in one’s plan. Perhaps the inheritance should be rolled into a trust or lead to changing insurance policies.

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