A Lucky Windfall: Managing an Inheritance

27 Oct A Lucky Windfall: Managing an Inheritance

Although relying on an inheritance is possibly the worst financial advice anyone could give you, the fact is that the average inheritance a Canadian receives is over $100,000.

The challenge is figuring out the best way to spend that money. It’s easy to spend the money as quickly as you receive it, but spur-of-the-moment decisions rarely stand the test of time. Here’s how to make the most of that lucky windfall.

Wait until you’re ready.

If the inheritance came from your Great Aunt Sally, a distant relative you haven’t seen since you were a small child, then this advice may not apply. But if the inheritance came from your mother or father, or from another close relative, the money is tied to your loss. Allow yourself to grieve. When you’re ready, make sure you have a plan for the money before you start spending it.

Create a plan.

In our consumer-driven world, it’s easy to spend money. Whether it’s a vacation, a new car, or a special piece of jewelry, it can be fun to spend some of your inheritance in a less responsible way. Just make sure you don’t blow all of it. Set aside some of the money for something enjoyable and create a plan for the rest. And don’t forget: If you acquire anything significant, you’ll need to update your will to reflect your new situation.

Pay off debt.

The most important thing you could do with an unexpected windfall is to pay off your debt, whether it’s from credit cards or a car or student loan. Getting rid of debt is the first step in achieving financial security. The less you owe to other people, the more you are free to make your own financial choices.

Create an emergency fund.

Things happen. You get sick and can’t go to work. Your car is stolen. Whatever the reason, everyone needs an emergency fund. Experts suggest keeping three months of salary available to keep you afloat in case you need cash unexpectedly. It can be hard to build up on your own, but an extra influx of cash can take care of this quickly.

Save for retirement.

It’s just as important to plan for your future as it is to plan for the present. If you don’t have any debt and you have enough liquid savings, put that extra money into retirement savings. Saving a modest amount right now can translate into a comfortable amount for your future. You can top up your RRSP or TFSA, or save in your own vehicle with the help of a financial advisor.

Help your children.

If you have children, you may want to use this opportunity to help them. This may include putting money into an RESP for a younger child, or helping an adult child with a down payment on a home.

Whatever you decide, inheriting a large amount of money at once can be overwhelming. Don’t rush into anything. Working with a financial advisor or a financial security specialist can be invaluable to planning out an appropriate way to make the most of your inheritance.

To learn more about planning your estate, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.