Integrating an Inheritance Into Your Lifestyle

What to do when you inherit money can be one of life´s major financial decisions, especially if you receive a significant sum. It can change your lifestyle and the way you look at your wealth management goals.

If you expect to receive a substantial inheritance in the near future, there are some important items to consider to help avoid making any potentially regrettable decisions:

  • Determine what you will receive and when.
    Inheritances may not typically come in the form of one check. A beneficiary could receive pieces of different assets over a period of time. You should consider speaking with the estate´s executor to determine what assets you are likely to receive and when you can expect them.
  • Wait a while before making any major decisions about the inheritance.
    This includes both investing and spending decisions. Set specific financial goals and assess how your inheritance will help support your wealth management objectives.
  • Decide how the inheritance should impact your lifestyle.
    It is recommended that you thoroughly assess your lifestyle and think about how much of that inheritance you wish to spend on nonessentials—such as a luxury dream vacation or remodeling your house—and how much should be set aside for funding your needs and goals—such as your retirement. Also, the tax implications of inheriting assets may not always be obvious, so you should consult with your tax advisor regarding your personal circumstances.
  • Determine how the inheritance fits in with your current assets.
    If an inheritance is significant and you include inherited assets in your investment portfolio, it may alter your asset allocation. First, assess if your original asset allocation is still appropriate and then determine how to move closer to your targeted allocation given the new assets.
  • Decide whether to share the inheritance with your spouse.
    Married individuals who receive a large inheritance face a tough decision: Should you share the inheritance with your spouse or hold the assets separately? Legally, you aren´t required to share the inheritance, even in community property states where income must almost always be split equally. Even if all other marital assets are owned jointly, you may want to consider keeping an inheritance separate for a couple of reasons:
    • Should you get divorced, you probably wouldn´t have to split a separately held inheritance with your spouse.
    • You control who receives the inheritance. If the inheritance is owned jointly, when you die it goes to your spouse. If your spouse remarries, there is a chance the inheritance will ultimately pass on to a second spouse or children from a second marriage. You can get around that through the use of a trust, but it may be simpler to just keep the assets separate and provide for their disposition in your will.

Considering the sensitivity of keeping the inheritance separate, it may be better to discuss the inheritance and your concerns openly with your spouse rather than being evasive. Even if you decide to keep the inheritance separate, that doesn´t mean you can´t share some of the assets for common goals.

Please contact a UBS Financial Advisor if you´d like to discuss the implications of an inheritance on your financial goals. Discussing these important issues before receiving an inheritance is critical for preplanning purposes.