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Tax-Proofing Your Inheritance

Benjamin Franklin once said, “nothing is certain but death and taxes.” In this article, we deal with both and share a few guidelines to follow if someone you know and love has passed and you have been left an inheritance. 

1. Take Time to Develop a Plan

During this time, you might feel confused, upset and overwhelmed. A large inheritance that pushes you out of your financial comfort zone can create anxiety about how to best manage the money. As an inheritor, you may feel the need to respect the goals or investment strategy of the person who gifted you the inheritance; even though you know it is your money, it could feel borrowed, forced upon you or given with strings attached.

When deciding what to do with an inheritance, the last thing you want to do is make financial decisions under an emotional haze. Avoid making any drastic moves right away, such as quitting your job or selling your home. Some experts suggest giving yourself a six-month buffer before using any of your inheritance, using the time instead to develop a financial plan.

2. Understand What You’re Inheriting

Before you determine what to do with an inheritance, you need to understand what it is. How you use your inheritance will largely depend on its source. Typically, an inheritance will come in the form of assets from one of these places:

3. Plan What To Do With Your Financial Gain

At Potentia Wealth, we believe in goals-based investing. Just like doing your household budgeting, it’s important to “assign” your inheritance to specific purposes or goals. Depending on your financial situation, the simple concepts of “save, spend and give” may be a good place to start when deciding on what to do when you get an inheritance.

One thing is certain, there is no such thing as “tax-proofing your inheritance,” but you may be able to control how and when the taxes will be paid. Work with a professional like those at Potentia Wealth and Potentia Tax to develop a plan, understand what you are inheriting and have specific goals for your investments.

Your family financial health is the goal.

The simple, powerful reason to focus on your financial health is to take good care of yourself and the ones you love. We’ll help you do both.