If you’ve received money in a will from a relative or close friend, it can be difficult to have a clear idea of what to do with it. Of course your personal circumstances and the amount that you receive will play a big role in your decision, but whatever the case, these are four things you should always consider.
1. Be patient with it
Whatever you do, don’t rush into making a decision. Receiving a windfall is always a blessing but in the case of inheritance, it can be extremely bittersweet. When receiving inheritance due to the loss of a loved one, it’s totally understandable for your emotions and grief to cloud your judgement, so be patient. Take your time; under the Financial Services Compensation Scheme an inheritance balance of up to £1million is protected (in the banking system) for 6 months, so you don’t have to do anything with it straight away.
2. Don’t be afraid to ask for help
It’s always a good idea to get some advice when you receive any unexpected money. Investing in a Financial Planner at this time may be just what you need to help develop the clarity of how best to use your inheritance. They can look at your personal situation and help you make the best decision for you, both for the immediate situation and for the longer term.
3. Clear your expensive debts
A great place to start is by considering any money you owe, and whether your inheritance can help you pay off any credit cards or personal loans. You’re best off prioritising debts which are costing you the most interest. A loan or credit card balance with a high interest rate can feel like a burden, which is all the more reason why it should be the first to go. Once cleared, it saves you paying back more than you owe in interest and increases your disposable income.
4. Savings, investments and sharing
After paying off any debts, aim to put away enough for an emergency fund to cover three to six months of your normal outgoings. At this point, there are countless routes to go down with your remaining windfall, so it’s best to seek professional advice for your unique circumstances. One option to consider is bolstering your savings, but don’t just assume that you’re best putting it all into Cash ISAs. A good mix of easy-access and fixed-rate savings of between one and five years is generally a good idea.
Any money that you won’t need to access for the next five to ten years could be invested. There will always be risk involved, but diversifying your investments and investing over long time periods can minimise the risk, providing you with some level of protection. Only investments offer the possibility of returns matching or exceeding inflation. So investing is necessary to protect the purchasing power of your money.
Perhaps you see your inheritance as an opportunity to share it with your own relatives and loved ones. If you don’t need the money and would rather somebody close to you received it, a deed of variation can be written up to redirect the gift. If the other parties are young you might consider the protection of a trust. This can also help mitigate Inheritance tax on your own estate. Whatever you decide to do, speak to a professional before making a decision.
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