Financial Planning for Inheritance

Receiving an inheritance can be complicated. You’ve just lost someone close to you, and now you have the responsibility of making sure you don’t waste such an amazing gift. That starts with smart financial planning, and our team will walk you through what happens after you receive an inheritance.

This is the typical process for receiving an inheritance:

> Someone close to you passes away and you experience and learn to cope with the grief.
> You are informed by the executor of their estate that you will be receiving an inheritance. They will usually give you some idea of what it is, but the timing of the distribution is unknown.
> After the estate has been properly settled, the executor will start distributing the remaining assets to the beneficiaries. It is very common for them to hold some funds back until they have everything cleared out with the CRA and any other obligations in the estate are covered.
> You receive the majority of your share of the inheritance and start wondering what you should do with the money.
> At this point, most people pay off any high interest items, such as lines of credit, credit cards, and vehicle loans.
> As the division of the estate winds up, you receive the final share of your inheritance as the remainder is distributed.
> Now you’ve received your entire inheritance, and most of your short-term debt has been paid off.

The next step usually involves your home. For those who already own a home, the question comes down to whether or not to pay off the mortgage. For those that don’t own a home, the question comes down to whether or not they should buy a house in cash or use the funds for a down payment and mortgage the rest.

Every person’s situation is unique. However, given the lower interest rates today, we often find it to be more advantageous to hold a mortgage and invest the remaining assets.

It’s fairly straight forward if you take $100,000 and pay down your mortgage, it effectively saves you the rate on your mortgage. In this example let’s use 2.79%, so it saves you $2,790. If you conservatively invest this money you should be able to get 4% or $4,000. A more aggressive investor can earn even more than this.

It comes down to each individual’s tolerance for risk, and what their ultimate goals are. What to do with inheritance money can’t be answered by a generic article you read on the internet, but it can be answered by sitting down with a professional who has your best interests in mind.