How to Make Your Inheritance Last

Most people believe that receiving a large inheritance from a lovedone would be life changing.At least one study,however, found that about one-third of Americans who had receivedan 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, nearlyone in five spent it all.² If you’re preparing to receive an inheritance, there are several steps you can take to ensure that your fundswill last longer than a few years.

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First, do not make any hasty decisions.

Once you receive your inheritance, do not make any hasty decisions about what to do with it. While you are crafting your long-term financialplan, consider taking some of the following actions:

• Park the funds in a safe place such as a savings account,money market account,or certificate of deposit. However, be aware that the FDIC insures these types of accountsonly up to $250,000 per depositor, per insured bank, for each account ownership category.³
• If you do not already have an emergency fund, set one up to cover a minimum of six monthsof expenses. If you alreadyhave an emergency fund, consideradding additional funds tocover one year of expenses.
• If you’re married,you will need to decide early on if you want to keep your inheritance in yoursole name in an individual account or placethe funds in an accountjointly owned with your spouse. This decisionlargely centers on whether you want to protect your inheritancefrom being considered a maritalasset if you ever get divorced in the future.
• Also, it is important to know that even if you put the inheritance in your sole name,spending money from that accounton joint or family expensesmay render the inheritance account a maritalasset, depending on the rulesin your state.You should consider seekinglegal counsel beforetaking custody of your inheritance.
• If you are considering giving some of your inheritance to your children during your lifetime,you could invoke a gift tax or incur negativeincome tax consequences if the gift is not structured properly. You should only proceedwith gifting once you understand all the potential consequences.
• If you have significant debts or liabilities, you may consider using a portion of your inheritance to pay the balance off or lower it.

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Still working? Put awaymore toward your retirement.

Some financial experts estimatethat in order to comfortably retire, you should have one year'sworth of salary saved by the time you are 30 years old, three times your salary by the time you are 40years old, six times your salary by the time you are 50 yearsold, and eight times your salary by thetime you are 60 years old.⁴ If you are working and are not contributing the maximum to your401(k), consider bumpingup your withholding, particularly if you are not meetingyour employer’s match. If your employerdoes not offer a 401(k),start funding an IRA on your own. Note that if you have inherited a traditional IRA, any withdrawals you make will be included in your taxable income.

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Hire a team of professional advisors.

You will need a team of professionals to help you develop long-term plans to make your inheritance last.

• A financialadvisor will help you analyzeyour current financesand build a solid financial foundation that includes investments, credit and debt management, collegesavings, and retirement planning. Your advisor can also help you look into the future and plan for long-term financialgoals, such as purchasing a first or second home, purchasing an investmentproperty, establishing funds for retirement, or starting a charitable foundation.
• An insuranceagent will help analyze the necessary types and amounts of insurance (life, long-term care, and liability) to ensure that you and your familyare protected.
• A tax professional will help you analyze cash flow and create a plan to minimize capitalgains and other income taxes.

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We can help you create or update your estate plan, reduce or eliminate estate taxes, developa gifting strategy, support your charitable goals, protect your inheritance from creditors, predators,and lawsuits, and work with you to create your family legacy.

If your inheritance is large enough,it has the potential to last throughout your lifetime. We’re heretoanswer your questions about receiving, growing, donating, protecting, and ultimately passing on yourinheritance to your loved ones.

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Attorney Advertising. This content is for generalinformational purposes only and does notconstitute legal advice.Laws vary by state and individual circumstances. This information is based on general principles and Illinois law and may not apply in other jurisdictions. Viewing this contentdoes not create an attorney-client relationship.

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1. JeR Grabmeier, Most AmericansSave Only about Half of Their Inheritances, Study Finds, Ohio StateNews (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. Jay L. Zagorsky, Do People Save or Spend Their Inheritances?, 34 Journalof Family and EconomicIssues 64, 71 (2013)
3. DepositInsurance 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.