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Wealth advisor: 6 tips for making the most of a windfall

Ryan Halpern, Contributor

Millennials and Generation Xers will face major decisions in the coming decade on how to handle any inheritance from parents, grandparents and other relatives. An estimated $30 trillion in assets is expected to pass from baby Boomers in North America to their heirs over the next 30-40 years, according to a 2015 study by Accenture. At the peak, between 2031 and 2045, 10 percent of total wealth in the United States will be changing hands every five years.

I’ve worked with a number of people who have received an inheritance. Developing a strategy for this often unexpected sum, or for any windfall, can be life-changing. With prudent planning, a sudden influx of wealth can be an opportunity to achieve financial stability, pay off debts, educate your children and also leave you with a little left over to have some fun.

It can be difficult to make important decisions when you've received money, especially from a loved one who has passed away. Some people feel paralyzed by loss, which can be compounded by a sense of guilt. Others can get overexcited. It's easy to be taken in by a friend or acquaintance looking for $50,000 to fund a start-up or by the temptation to buy an expensive home or vacation. But if the start-up goes belly up or the splurges pile up, the funds that once seemed so large can disappear — fast.

After benefiting from an inheritance or a windfall, it’s important to delay any major decisions and develop a long-term game plan first. After spending a little on yourself, here are six recommendations for how to optimize your new wealth.


Understand what you've got

Receiving a lump sum of cash may sound simple enough, but it’s also very common for heirs to receive stocks, bonds, a retirement account such as an IRA or 401(k), real estate or other assets. Each asset can have legal complications and unique tax implications. Hiring a financial advisor, tax specialist, or attorney to help you navigate your inheritance in an efficient manner can save significant time, money, and frustration.

List your goals and priorities

Once you have a grasp of the situation and know what you want to accomplish with your new resources, developing a game plan can help you determine how much money is needed over the next few months, as well as over the long-term, to meet your goals.

Just about everyone will have an immediate need or wish. Some people may need to pay for a wedding while others will want to generously donate to their favorite charity. The first step is to prioritize your goals, understand how the funds will affect monthly cash flow and develop a long-term financial strategy.

Pay off debt

Paying off short term, high-interest debt is often a great first step. It can help lower your monthly fixed expenses while eliminating unnecessary interest expense.

Deciding to pay down your mortgage may depend on your interest rate. For example, if your mortgage interest rate is below five percent, a person in their 30s or 40s may be better off investing and earning returns greater than five percent over a long period.

Create an emergency fund

A good rule of thumb is to have at least three to six months of living expenses available in cash, perhaps in a high-yield savings account. A proper emergency fund will help you avoid racking up new debt when unexpected expenses arise.

Start or add to your retirement savings

If you are not already contributing the maximum amount to a retirement savings account, this is the perfect time to begin. High taxes can be a headwind to accumulating wealth, so taking advantage of tax-advantaged 401(k) plans, Individual Retirement Accounts and other tax savings strategies can make a significant impact on your bank accounts over time.

Treat yourself

Once a financial plan is buttoned up, have some fun! If the amount of your inheritance is life changing, it may be time to book the flight for that dream vacation for you and your spouse. If the inheritance is smaller, then perhaps a retail shopping spree is the way to go.

Ryan Halpern is a wealth advisor for Brightworth, an Atlanta wealth management firm with more than $3 billion in assets under management.

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