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Chelsea Logan was a month and a half away from her 21st birthday when her father
died suddenly from a heart attack. As her family struggled to cope with the loss, she
received another shock: Her father, a longtime federal government worker, had left her
$167,000.
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How to get the most from an unexpected inheritance – USAT...
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"To hear that amount at 20 years old is kind of
mind-boggling," Logan, now 23, says.
Logan, a finance major at George Mason University in
Fairfax, Va., used the money to start her own business.
"My inheritance has been a huge blessing," she says. "I'm
an entrepreneur at heart."
VIDEO: Advice on how to manage an unexpected
inheritance
Joe Brier, for USA TODAY
Chelsea Logan, 23, inherited $167,000 when her
father passed away suddenly three years ago.
She has since invested the money and used
some of it to start her own business, Satissimi,
selling yoga wear and offering life coaching.
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next 50 years, the largest transfer of wealth in U.S.
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advice on how to manage an unexpected inheritance.
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Their suggestions:
•Take your time. Don't make any major decisions or
purchases until you've consulted with advisers who will
help you make sound choices about your money, says
Mitch Brill, a financial professional with MassMutual. Some financial planners recommend
putting the funds in a money market fund or other low-risk investment for at least a year.
You'll probably need a financial planner, a certified public accountant and an attorney, Brill
says. Your attorney and accountant can help you navigate tax and legal issues related to
the estate. Your financial planner can help you develop long-term strategies for your
money, he says.
•Don't quit your day job, at least not right away. While the temptation is strong to tell
your boss what you think of him, your inheritance will last a lot longer if you continue
working, says Mark Bass, a financial planner in Lubbock, Texas.
KEY QUESTIONS PROVIDED BY:
For example, suppose you inherited $1 million. You could
quit your job and try to live on your inheritance.
Alternatively, you could keep your job, invest the money
and give yourself an annual "raise," Bass says. Under the
4% rule — which not all financial analysts agree with —
you can theoretically make an investment portfolio last
Whether the sum is large or not,
there are important questions you'll
want to ask your financial advisor:
1) Where should I invest the money?
2) Should I alert my CPA? What if I
don't have one?
3) Should I use the money to help pay
off debt or invest it for the future?
indefinitely by withdrawing 4% the first year and adjusting
withdrawals by the inflation rate every year after that. On
a $1 million inheritance, that's an initial $40,000 bump-up
in pay.
"Some of my happiest clients invested the money and
didn't quit their jobs," Bass says.
•Be discreet. It's not unusual for parents to leave
different amounts to their children, so revealing the
amount you've inherited could lead to family discord, says David Bakke, editor of Money
Crashers, a personal finance blog. Discretion will also reduce the number of unwanted tips
and investment pitches from friends and family members, says Bakke, who received an
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inheritance from his parents.
At the same time, inheriting a large amount of money can lead to isolation, says Anne
Ellinger, co-founder of Bolder Giving (boldergiving.org), an organization that helps heirs
become philanthropists. "I would encourage people to tell some trusted and intimate
friends, especially if it's overwhelming or upsetting," she says.
•Address pressing financial needs first. Before you buy a boat or invest in a business,
pay off credit card debt, student loans and other high-interest debt, says Joseph
Montanaro, financial planner at USAA. Make sure you have a rainy day fund that will cover
at least six months of living expenses.
You should also review your insurance policies, particularly liability coverage, Montanaro
says. A large inheritance makes you "a more lucrative target" for litigious individuals, he
says.
•Pay attention to taxes. Consider this scenario: You inherit an individual retirement
account worth $150,000 and decide to cash it out and pay off your mortgage. You're out of
debt, but the additional income pushes you into a higher tax bracket, resulting in a big tax
bill.
These types of missteps are common when individuals inherit IRAs and other pretax
retirement plans, Brill says. Depending on your situation, you may be better off setting up
a stretch IRA, a strategy that lets you take annual withdrawals from the IRA based on your
life expectancy. This allows the inherited IRA to grow tax-deferred for years.
•Be true to your values. In 1981, Christopher Ellinger's
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grandmother left him $250,000. He and wife Anne, then in
their early 20s, were working as community activists and
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made very little money. "He got a call saying, 'Your
portfolio's in the mail,' and he said, 'What's a portfolio?' "
Anne Ellinger recalls.
Christopher and Anne decided to use the money to learn
about financial planning, socially responsible investing
and philanthropy. That led them to create More Than
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died, they asked him to leave Christopher's portion of his
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and later, Bolder Giving. Before Christopher's grandfather
estate — about $300,000 — to charity. "We knew we
already had enough," Anne says.
Chelsea Logan realized that she wanted to have more of
a say in how her money is invested. She initially invested
part of her inheritance with a well-known brokerage firm
but felt that her financial adviser wasn't interested in
listening to her views. She withdrew the funds and put
them into a no-load mutual fund account, where she
makes her own decisions.
That's not the only change Logan made after she received her inheritance. She initially set
out to design luxury travel bags, but after a year and a half was overwhelmed by stress.
Conscious of her family's history of heart problems, she took a couple of months off and
founded a business that focuses on health. Her company, Satissimi, sells yoga wear and
provides life coaching.
Logan says her father, who was only 57 when he died, never took a vacation. "He had all
of this money, and he never enjoyed it," she says. "I decided I was going to pave my way
and do something I really love."
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