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Estate Planning Family Stewardship & Philanthropy Personal Wealth

Managing a Windfall: How to Be a Good Steward of Your Inheritance

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Receiving an inheritance comes with a mix of emotions. You may be grieving the loss of a loved one while feeling overwhelmed with the responsibility of managing a recent windfall. No matter the size of your inheritance, there are some things you can do right away to be a responsible and conscientious steward of wealth. From saving, paying down debt and investing, here are a few considerations to make regarding your recent inheritance.

Tip #1: Review Your Savings Goals

A simple strategy for those who may feel overwhelmed by an inheritance is to start by reviewing your savings goals. This could include retirement savings, emergency savings or a savings goal for something like a new car or house. It may be beneficial to allocate a majority or a portion of your inheritance towards your savings goals. While it may not feel especially exciting to tuck this money away, it can help create a nice cushion and make your big goals much more attainable.

Tip #2: Focus on Debt

Debt can grow exponentially while diminishing your wealth, meaning if you have any it may be beneficial to focus on paying it down. From mortgages, student loan debt and car loans to higher interest debts like personal loans and credit card debt, focus on those with the highest interest first. For low-interest debts like mortgage and student loans, consider making principal-only payments if possible. These can help significantly reduce your interest payments in the long run by lowering the amount that interest is based on.

Tip #3: Treat Yourself (Sparingly)

One of the first things everyone wants to do after coming into a financial windfall is buy something they've always wanted. It is actually important to indulge yourself with a little something to enjoy the money. Just be sure to budget for it appropriately, and then don't exceed that budgeted amount. Consider something that gives value while doubling as an asset for your future, such as artwork, investment properties or jewelry - anything likely to hold, or appreciate in, value is a good choice. This can allow you to enjoy them today while planning for tomorrow.

Tip #4: Build Your Portfolio

If you don’t have one already, now may be an opportune time to begin building out your portfolio. If you’re able to, work with a financial advisor who can offer personalized investment strategies built to address your short-term concerns and long-term goals. Investing a portion of your inheritance means the potential is there to maintain and grow its purchasing power over time, although returns are never guaranteed.

Tip #5: Understand Potential Tax Obligations

There is no inheritance tax in Canada, and in most cases, the beneficiary of an inheritance will not be obligated to pay taxes owed on the estate. There are certain exemptions, however, including the Principal Residence Exemption and the Lifetime Capital Gains Exemption. It may still benefit beneficiaries to work with a financial advisor or tax professional to determine how decisions regarding the inheritance could affect future tax obligations.

An inheritance is an opportunity for beneficiaries like you to make impactful financial decisions. As you determine how best to manage your recent windfall, work with a financial advisor to build the right course of action for your financial wellbeing.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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