5 Ways to Maximize Your Inheritance

When you receive an inheritance, regardless of amount, you’re going to need to figure out how to put it to its best use. Depending on who left it to you, you may have different emotions and ideas surrounding that decision. Here are some of the most common questions and scenarios you might face with an inheritance – and the best ways to deal with it going forward:

How should I put this to the best use for me?

Receiving an inheritance is emotionally charged for many people, but how you allocate those funds shouldn’t be. Take the time you need to sort out your emotions surrounding the money so that you can proceed logically when you’re ready. The bottom line is that it’s a sum of money outside your typical income, so if you’re struggling with what to do with it, a financial planner can help you sort out the next steps. Pay down debt? Put it into savings for your children’s college fund? Invest it? There are plenty of options moving forward, so seek help making those decisions if you need it.

Can I use part of it to honor my family member?

When you receive an inheritance, that money is yours now. So if you’ve allocated the money in a way you feel good about, but still want to reserve a portion to honor your relative – go for it. The spectrum for this is incredibly wide, so choose an amount you feel comfortable with. It could be $10 to your family member’s favorite charity, a trip to the site that they always hoped to visit or a substantial donation to their alma mater. Again, this is your money now, so you have the power to decide what’s a responsible way to honor the deceased.

Should I keep the stock because my family member owned it?

See above: this is your money now. So when it comes to stocks, you’re also inheriting risk. There is no reason to keep your grandmother’s risky stock if it’s not something you want in your portfolio, so make sure the stocks you keep are in line with your overall portfolio. A family or friend’s investment mix and risk tolerance aren’t necessarily the best match for your financial goals.

What if the inheritance is a house?

If you’ve inherited a house, there are some important questions to ask yourself:

• Would you want to live there as your primary residence? If you do, then you’re in luck – keep it! Just be sure to crunch the numbers on property taxes, energy usage, maintenance and other costs to be sure you could afford the price of living there.
• You have no desire to call that house your home? Sell it. Again, if you feel guilt about that, realize that property is now your burden to bear. If it doesn’t make sense for you to keep it, then don’t.
• Would you want to use it as a rental house? If you are up for taking on a rental property, then go for it. If it doesn’t work out, you can sell it.
• Do you want to use it as a vacation house? This is an option if you’ve calculated the cost of a mortgage, upkeep, and other expenses and it’s still an affordable decision.

What are the tax ramifications of selling investments that I inherited?

When you receive an inheritance, you will get the readjusted value of the asset for tax purposes. That would be whatever the higher market value of the asset is at the time you inherit it. When you become a beneficiary, the inheritance will get what is called a “step-up in basis” to minimize the asset’s capital gains tax.

This post originally appeared on Your Richest Life.

About the Author: This post originally appeared on Your Richest Life. Katie Brewer is a fee-only, Certified Financial Planner™ who helps members of Generations X and Y create their own financial path. If you would like to learn more about Katie and Your Richest Life, you can connect with her on Linkedin.