Estate Planning Awareness Week: How to Make Your Inheritance Last
October 21–27 is Estate Planning Awareness Week, a time to highlight the importance of planning for your financial future. Throughout the week, NC Planning will be sharing valuable insights on how effective estate planning can help you safeguard and grow your assets, protect your loved ones, and mitigate potential risks. Whether you’ve recently received an inheritance or are looking to build a lasting legacy, estate planning with NC Planning can help you secure your financial future and achieve your long-term goals.
Most people believe that receiving a large inheritance from a loved one would be life-changing. At least one study, however, found that about one-third of Americans who had received an inheritance eventually experienced a decrease or no change in their wealth after receiving the inheritance, meaning that they most likely spent everything they received.[1] For baby boomers who received an inheritance of $100,000 or more, nearly one in five spent it all.[2] If you are preparing to receive an inheritance, it’s important to take the steps to protect and grow these assets, so that they last well into the future.
At NC Planning we guide our clients through financial and legal decisions, helping them create long-term plans that align with their estate and business planning goals. Here are several steps to consider when managing your inheritance:
Avoid Making Hasty Decisions
Once you receive your money, do not make any hasty decisions about what to do with it. While you are crafting your long-term financial plan, consider taking some of the following actions:
- Safeguard the Funds: Place the inheritance in a secure account, such as a savings account, money market account, or certificate of deposit. However, be aware that the FDIC insures these types of accounts only up to $250,000 per depositor, per insured bank, for each account ownership category.[3]
- Establish or Strengthen an Emergency Fund: If you do not already have an emergency fund, set one up to cover a minimum of six months of expenses. If you already have an emergency fund, consider adding additional funds to cover one year of expenses.
- Consult an Estate Planning Attorney: If you’re married, deciding whether to keep the inheritance in your name alone or jointly with your spouse can have serious implications, especially in the event of a divorce. At NC Planning, we can help you understand North Carolina’s state laws and advise on how best to structure your inheritance for future protection.
- Reduce or Eliminate Debt: If you have significant debts or liabilities, you may consider using a portion of your inheritance to pay the balance off or lower it.
Still Working? Put Away More Toward Your Retirement
Some financial experts estimate that in order to comfortably retire, you should have one year’s worth of salary saved by the time you are 30 years old, three times your salary by the time you are 40 years old, six times your salary by the time you are 50 years old, and eight times your salary by the time you are 60 years old.[4] If you are working and are not contributing the maximum to your 401(k), bump up your withholding, particularly if you are not meeting your employer’s match. If your employer does not offer a 401(k), start funding an IRA. Note that if you have inherited a traditional IRA, any withdrawals you make will be included in your taxable income.
At NC Planning, we help our clients understand the tax implications of withdrawing from inherited IRAs and other retirement accounts. Our goal is to help you maximize the value of your retirement accounts while minimizing taxes, so you can achieve financial security for the future.
Hire a Team of Professional Advisors
To make the most of your inheritance, you will need the right team of professionals to help you develop long-term plans to make your inheritance last.
This team includes:
- Financial Advisor: To build a financial plan that integrates your inheritance with investments, debt management, and retirement goals.
- Tax Professional: To minimize capital gains and other tax burdens.
- Estate Planning Attorney: Our team at NC Planning can help you establish or update your estate plan so that your inheritance is protected and used in accordance with your wishes. This may include creating or updating a will or trust, setting up a gifting strategy, and protecting your inheritance from creditors or lawsuits.
Whether your goal is to provide for your loved ones, support charitable causes, or build a family legacy, we can help you structure your inheritance to achieve your long-term objectives.
If your inheritance is large enough, it has the potential to last throughout your lifetime and beyond. But developing a solid plan to manage, protect, and grow these assets shouldn’t be done alone. Our team is here to help you understand how to make the most of your inheritance – whether that involves growing it, donating it, protecting it, or eventually passing it on to the next generation.
Contact us today to schedule a consultation and learn how we can assist you in protecting your financial future.
[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.