There are a lot of classic stories that use receiving a large inheritance as a hook. Sometimes it’s the basis for a haunted house story. Sometimes it’s the setup for a story about families reuniting.

In the real world, receiving an inheritance can be different. For one, an estate usually results in a close relative or loved one passing on, and there can be a lot of emotion and personal feelings tied to the experience. For another, a large inheritance comes with a certain amount of responsibility to handle it wisely.

What should you remember about dealing with your inheritance?

Death and Taxes

Both are inevitable.

That said, tax obligations can still come as a surprise to many people.

Usually, federal estate taxes are only an issue with sizeable amounts of money. The amount changes over time as politicians wrangle the subject, so try to keep current on what levels might be susceptible to taxation.

Aside from lump-sum inheritances, tax considerations could involve inherited assets such as stocks, mutual funds, real estate, and other property.

Note that any changes in value following the original owner’s passing need to be calculated for tax purposes with stocks and other investments. An investment that grows will be taxed, although one that depreciates may be claimed as a loss. There are good arguments both for and against selling off stock sooner than later. A lot depends on a myriad of details which you’d be better off discussing with a financial expert.

Regarding property, you’ll be assuming its tax burdens, insurance, and other obligations. You can choose to live there, rent, or sell—treating the profit as a cash inheritance.

5 Essential Steps To Good Money Management

If you’re not accustomed to having excess money, a large inheritance can be disorienting and poor decisions might occur. Here are five things to keep in mind when coming to terms with your inheritance.

1. Meet with a financial advisor.

A financial advisor is essential when dealing with a sudden influx of income. They can help you sort out existing financial issues, offer investment advice, and help plan for your retirement.

Because inheritances can come with some emotional baggage and possibly family issues, a financial advisor also serves as a neutral third party who can help you make decisions with a level head.

2. Take care of significant debt and high-interest loans.

This would be a great time to pay off all those high-interest credit card bills. The money you save no longer paying interest alone makes it an intelligent decision. Similarly, this is also an excellent time to take care of outstanding student loans, mortgages, and other large debts. The money you save each month, not having to make a loan payment, will make life a lot easier for you.

3. Consider placing some of your money in a safeguarded account.

Your financial advisor may suggest this—especially if you have a history of making impulse decisions on large purchases. Put a little bit aside to splurge if you must, but also remember to put a good chunk of it into an investment or savings account that includes significant penalties for early withdrawal.

Too many people with newfound wealth find themselves in deeper debt than before because they spent too much too quickly.

4. Make a retirement plan.

It’s no joke when people say it’s never too early to plan for your retirement. You don’t want to get caught by surprise years down the road and not have enough to live on when you need it.

Having a significant inheritance to draw upon, now would be an excellent time to sign up for an IRA or contribute to your 401k account.

5. Set up an emergency fund.

You never know what the future could bring. You could experience a sudden job loss or run into an unexpected health issue. If the pandemic has taught us anything, it’s that it’s always good to be prepared.

At a minimum, have six month’s worth of income set aside someplace safe to draw upon in times of need. This is excellent advice if your inheritance is more modest than life-changing. Use this as an opportunity to insulate yourself against hard times.

Make the Most Of Your Gift

Your inheritance was a gift from someone close. It seems both disrespectful and ungrateful to let this opportunity go to waste.

Use your windfall to bring financial security to your life and the life of your loved ones.

You can’t go wrong when planning for the future.