Handling an Inheritance: 5 Mistakes That Keep Americans From Building Legacies of Their Own

Research finds a third of Americans can expect to receive a significant inheritance. Treated wisely, these inheritances can help people meet their long-term goals, from rescuing their retirements to paying off credit card debt to financing family education.

Many Americans fall painfully short on those goals: about half, 52 percent, report feeling behind on retirement savings and nearly half, 48 percent, say they can’t save enough each month, according to a CFP Board survey released in August 2016.

Yet, despite their worries, even those lucky enough to receive an inheritance often don’t use it to meet their long-term goals. Where’s the disconnect? Windfalls can turn into mixed blessings when people indulge themselves or rush into their decisions about what to do with their inheritances, writes Senior CFP Board Ambassador Jill Schlesinger, CFP®.

“It took someone a lifetime to accumulate an estate. You can go slowly, too,” says Schlesinger. “Use your team to help create a timeline of goals and remember that an inheritance often coincides with loss, so give yourself enough space to grieve.”

In her latest contribution to LetsMakeAPlan.org, Schlesinger lists five critical mistakes Americans make with their inheritances.

Spending mindlessly: Some people begin mindless spending on “just a small indulgence.” A series of those kinds of purchases can morph into a spending splurge that might rob people of their ability to reach their overall goals for the inheritance.

Going it alone: Even Americans who manage their 401(k)s or their taxes well on their own can benefit from help. That’s because a windfall, whether it’s an inheritance or even lottery proceeds, is different. Those who receive an inheritance should consider assembling a team, including an estate attorney, an accountant and a CERTIFIED FINANCIAL PLANNER™ professional.

Making decisions too quickly: Americans should be careful not to make any big life decisions, like selling a house or quitting a job, too early in the process, Schlesinger says. An inheritance often coincides with loss, and many people aren’t thinking clearly when their emotions run high.

Becoming paralyzed in the investment process: Sometimes people who receive a lump sum become so worried about “investing at the top,” that they do nothing. They can consider dollar cost averaging (DCA), the investment strategy that divides available money into equal parts and then periodically puts the money to work in a diversified portfolio over time.

Providing for everyone except themselves: People love their kids, friends and charitable organizations – so much so that they sometimes neglect to take care of themselves. Push the pause button, Schlesinger says. There is plenty of time to provide generous support after a plan is established.

To decide how to handle an inheritance, consult a CERTIFIED FINANCIAL PLANNER™ professional, who can help you tailor a plan specific to your situation.