How to Manage Your Inheritances

by JRO on June 15, 2013

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Managing an inheritance is an extremely important duty, and it’s also one that people fail at doing routinely. Managing an inheritance, especially one that is not expected or very large, can be difficult, even for people that have a background in finances or investing. The most important thing to do is to keep calm and logical, to research your decisions, and to avoid letting anyone talk you into a decision that you believe is unwise.

An inheritance should be treated with dignity and respect. It’s the culmination of the life’s work of someone who cared for you dearly. It should be invested and spent with this in mind. While it may be tempting to immediately go out and buy something that you’ve wanted for a while, you should take a few days to reflect before doing anything impulsive.

Limit Your Exposure

The best way to begin managing your new inheritance is by limiting the amount of people who know about it. While people are well-meaning in general, you don’t want to paint a target on your family’s back when it comes to asking for favors. If someone is truly in dire straits, you’ll find out about it through conventional methods. You don’t need to let everyone know that you have extra money.

Find Low-Risk, Long-Term Investments

Risky investments should be avoided with an inheritance. It’s one of the main ways that people who have suddenly inherited money lose it all. Most of the focus should be in preserving the inheritance and growing it slowly. A good money management company can help you invest your inheritance in moderate-risk and low-risk investments to keep it growing.

Control Your Spending

If you want to take money out of your inheritance the best method is to set up a trust and take a scheduled draw from it. By scheduling a draw, you can avoid the temptation to take large amounts of money from the inheritance. If the inheritance is large enough, you can find a way to calculate the draw based on its annual return. This will ensure that you, too, will be able to leave an inheritance behind for your loved ones.

Clear Up Your Financial Obligations

There are a few things that are wise to do with your inheritance before investing the money. Paying off your car and your home are both good decisions to make, but only if the interest rates on the car and home are greater than the return that you can get with the inheritance money modestly invested. If you have a very low interest rate on your home, you may still be better served by keeping the inheritance invested. Since your car and home are not new purchases, you are not making any rash financial decisions.

Consider Your New Purchases

The decision to purchase a new car or a new home should be strongly weighed beforehand. Many people with investments make the mistake of buying a car or home that’s simply too expensive. A car will immediately depreciate, leaving you with less assets the second you drive it off the lot, and an expensive home will come with maintenance and property taxes that you may not be able to afford once the inheritance has been drained.

Remain Vigilant

It’s important to recognize that an inheritance should not disappear overnight. Most people who lose their inheritance lose it through a string of misinformed or badly researched decisions. As long as you carefully manage your inheritance and avoid high-risk behavior, your inheritance can support you and your family for a long time to come.

About the author

Henry Drexler is a freelance writer who focuses on wealth management, business, taxation, accounting, finance, economics and other relevant topics; those curious about the field of accounting may want to check out the accounting jobs with

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