How to Deal With Money You Inherited

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If you are in line to inherit money, you need to carefully consider your options and determine your next move. How you handle an inheritance can make a huge difference in how long the money lasts, and how large your nest egg can grow. How you handle the money you inherit depends on a number of different issues, including your overall financial situation and what you need the money to do.

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Things You'll Need

  • Financial statements
Step 1

Consult with your CPA or tax preparer to determine how much you might owe in taxes. Put some money from the inheritance aside to pay that tax bill.

Step 2

Assess your current net worth by adding up the assets you own and subtracting out your liabilities. Your assets include the value of any stock and mutual fund holdings, as well as retirement savings and the equity in your home. Liabilities include things like your home mortgage, car loans and any personal loans.

Step 3

Decide what you need to get out of the inheritance money, and how much risk you can afford to take with those funds. If you need to keep the money safe while generating current cash flow, putting the money in certificates of deposit or government bonds can be a good choice. If you are looking for long-term growth instead of current income, investing part of the inheritance in a widely diversified stock portfolio or index mutual fund is a good choice.

Step 4

Contact the mutual fund company or brokerage firm where you currently have your investment account and discuss options for bringing the inheritance money into that account. Discuss any fees or costs associated with the account. If you are transferring a large amount of money you should be able to avoid any administrative fees that would otherwise apply.

Step 5

Choose a variety of investments for your inheritance money, based on your own needs and tolerance for risk. If you have a long time horizon and seek long-term growth, a portfolio tilted more toward stocks might be best. If you need safety and current income, a portfolio of short-term government bonds, money market instruments and CDs would be best.

References

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