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Managing an inheritance

| June 15, 2017

An inheritance in the form of cash, real property, jewelry or stocks can enrich your life in many ways. Oftentimes, bequests from an estate are intended to help move the heir forward financially, or to keep a prized possession within the family. To fully realize the value of an inheritance, consider how the assets affect your overall financial plan.


The key to successfully managing any inheritance is to plan before you act. Certain types of inheritances may require you to make some decisions right away, but it’s crucial to be conservative in your actions and allow yourself some time to grieve. Then, work with financial advisors to maximize the value of your inheritance and decide whether to keep it, share it, invest it or liquidate it. Your options depend on your personal and financial circumstances, long-term goals and the type of inheritance involved.


Fast Money

Cash inheritances are the simplest assets. Your financial planner can help you determine the impact the money could have on your short- and long-term goals. This will help you refine your financial objectives, such as your approach to retirement income, college funding or real estate.


If you receive a cash inheritance, keep in mind that probate information is publicly available, so you may receive unwanted solicitations for investment schemes. Seek counsel from a qualified and financial advisor before risking any money. You may want to place the funds in a certificate of deposit or money market account until you can first meet with your advisors.


In addition, consider placing investments where your exposure to personal or professional liability claims is limited. You should consider consulting a tax attorney if the inheritance substantially increases the size of your estate.


Family or Company Stocks

Many people leave their favorite stocks as a birthright to an heir. Perhaps the stocks are emotionally valued because grandpa worked for the company or they supported grandma’s lifestyle. But when deciding whether to keep stocks, it’s crucial to determine if they’re an appropriate asset for you relative to your personal investment philosophy. Consider how the stock affects your investment portfolio’s diversification profile, risk exposure and tax bracket. If you inherit stocks, most capital gains can be lessened by re-valuing the stock to the date of the grantor’s death.


For example, if your grandmother purchased stock for a $10 base and the stock is worth $150 today, the capital gain would be assessed on the difference of $140 if the stock were sold. But if she passed away and left the stock to you, the base value of the stock is $150, adjusted to the day of her death. This decreases capital-gains liability by the time you receive the stock.


Property Values

If you inherit real property, its value as an asset or liability is largely determined by whether you plan to live in, rent or sell it. To understand the cost factors involved, review the property and tax laws pertaining to the asset, along with any maintenance fees or out-of-state property management costs. Then, balance that against any rental income, if applicable. If you want to sell the property, consider the capital-gains implications and the time and cost of waiting to liquidate it at the best price.


Jewelry and Collectibles

Most people inheriting jewelry or collectibles value them as family heirlooms, not as assets. These items usually hold great sentimental value. They are not liquid assets that you want to sell quickly, if at all. Keep in mind that these valuables need to be protected. While an estate planning attorney can determine a valuation for each item, for insurance purposes you should consider getting a neutral, certified evaluation. You may also need to obtain a separate insurance rider against loss. Jewelry and collectibles appreciate, so be sure to update your insurance every three to five years. Working with your advisory team and using strategic planning can help you preserve and enhance your inheritance.


If you expect that some assets may eventually be passed on to you, you may want to speak with the grantor to determine the optimal way to receive the gift or bequest to increase its value to your estate and to decrease tax liability.