It may be an expected inheritance or it may have come as a surprise. Either way it's important to make sure that you know what to do when you find yourself dealing not only with a sum of money but the grief and emotion that comes with losing a loved one.
Don’t make a choice straight away
When you are dealing with grief and coming to terms with the loss of a loved one, it can be difficult to think clearly. You may find it hard to look past the short term future and therefore if you try and sort out your inheritance straight away, you might not make the best choices.
So, it may be worthwhile setting the money aside temporarily in a high interest savings account until you have come through the initial grief period. This will allow you to take the time to think about what you really want to do with the money. After all, you will want to make sure you honour your loved one by making good choices with their money.
Bank Deposits
Where the sum is large, there is some merit in having more than one account and with more than one bank. You may sleep a little easier if all your money is not just in one account. This is because there is a limit on the Deposit Protection of £85,000 for each bank per person. There is also National Savings & Investments, the Government savings option, which is more secure than a normal bank. Their products have become more competitive lately with rates rising.
Create an Emergency Fund
An inheritance can mean a windfall that could be life changing with a good plan. First you should think about your ‘fall back’ money. Do you have an accessible emergency fund?
This is a buffer to help soften the blow of unforeseen events or shocks like a pandemic. Advisers normally suggest around 3 to 6 months of expenses, safely set aside in the bank. This helps you to keep your head above water should something bad happen like losing your job or having to pay for unexpected house repairs. If your income is variable you might need more money. Keep these funds in a high interest savings account so you can access them quickly if you need them.
Pay off any outstanding debts
If you have any outstanding short term debt such as credit card bills or a car loan, it’s a good idea to use your inheritance to pay them off.
You should also consider paying off your mortgage to reduce your outgoings. This can be complicated by the fact that most of us are hooked into deals and there are early payment penalties so care is required. With interest rates on the rise it makes sense to form a plan to repay debts and that might mean setting aside some money for clearing a mortgage at the best time.
Plan for the future
Take a step back and think about your priorities. What does the future look like to you? Has the inheritance changed things?
Invest time and energy into some proper planning. This will be a great investment for your future as it will bring clarity around your resources and your financial objectives.
Try and think about all aspects of your life, such as:
- What does retirement look like and when?
- Should you invest a sum and what outcomes are important?
- What risk can you afford and should be taken?
- Has your estate now got Inheritance Tax issues?
- Do you want to purchase property?
- Do you want to help your children out or make provisions for their future? Are they at an age to be thinking of getting married, having children or buying their own property?
Contact a Financial Planner
Of course you would expect us to say this! But regardless of our profession, we believe this to be a very sensible step to take as planning can bring so much confidence and direction.
If you’ve given yourself some time to think about what you want to do with the money, the next logical step is to talk to someone who can help you make those ideas into a reality.
Your financial planner will be able to help you answer any questions you have. They can help you to start designing a plan and work with you to help build your future and achieve your ambitions.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.