The period following a loved one’s death is often overwhelming and emotionally complex. While dealing with sadness and grief, managing an inheritance just adds another layer of stress. It’s not unheard of for individuals to feel a mix of conflicting emotions that lead to common inheritance pitfalls. Between the relief of acquiring additional funds and the challenge of making sound financial decisions, this time may become a challenging one.
Additionally, many people find that they spend their inheritance more quickly than anticipated. Other factors, such as taxes and debt repayments, are also often overlooked. Here are some common mistakes (and tips for how to avoid them) when managing an inheritance in the state of Texas.
1. Overlooking Texas Inheritance and Estate Taxes
There is no state inheritance tax in Texas, but federal estate taxes might still apply depending on the estate’s size. In addition, you could face capital gains taxes if and when you decide to sell inherited property. This is why it’s highly important to consult with a Texas estate planning attorney and a tax professional to understand tax obligations before making any financial moves.
2. Neglecting to Create a Budget
Without a budget, managing a large inheritance becomes a daunting task. If you’re not accustomed to handling substantial sums, you might find it easy to overspend. If you already have a budget, incorporate your new assets into it to better understand their impact on your financial plans. This can help prevent reckless spending and ensure you use your funds wisely.
3. Making Impulsive Purchases
Receiving a large sum of money may lead to impulsive buying decisions, such as splurging on luxury items or vacations. It’s essential to take a step back and evaluate whether these expenditures align with your long-term financial goals. Major purchases often come with additional costs, such as maintenance and insurance. Consider investing your inheritance instead of spending it immediately to secure your future financial stability.
4. Ignoring Debt Repayment
One of the first things you should consider is using your inheritance to pay off existing debts, such as credit cards, student loans, or a mortgage. Reducing or eliminating debt frees up your finances for future investments and provides greater financial freedom. Balance debt repayment with other financial goals, such as investing and saving.
5. Risking Eligibility for Government Benefits
If you rely on government assistance programs like Medicaid or Supplemental Security Income (SSI), an inheritance could affect your eligibility. To avoid losing these benefits, a Texas estate planning attorney such as myself will help you explore your options. For instance, setting up a special needs trust helps to protect your eligibility for public assistance while managing your inheritance.
6. Underestimating Savings Needs
A sudden influx of money could lead you to focus on immediate spending rather than long-term savings. Establish an emergency fund with enough to cover six months of expenses and consider boosting your retirement contributions. Properly managing your inheritance includes planning for future needs and financial security.
7. Skipping Professional Advice
To make the most of your inheritance, it’s crucial to seek advice from financial experts. Consult with a financial advisor, an accountant, and a Texas estate planning attorney to help you make informed decisions. This way, you can equip yourself with guidance on investments, tax implications, and effective estate planning strategies.
HOW ESTATE PLANNING ATTORNEYS HELP YOU AVOID COMMON INHERITANCE PITFALLS
A Texas estate planning attorney helps you navigate the complexities of managing an inheritance. We help you with your estate planning to ensure protection of your loved ones and your assets through incapacity, death and from taxes. Working with a professional may involve creating important documents such as a will, power of attorney, and medical directives, which can further safeguard your financial and personal future.
Schedule a consultation with us today to make strategic decisions that align with your financial goals and secure your inheritance for the long term. By planning effectively, you can ensure that your inheritance supports your financial well-being and benefits future generations.
Bromlow Law, PLLC and Laura L. Bromlow, are dedicated to the practice of Elder Law and Estate Planning. Our practice focuses solely on working with clients in these and closely related legal fields. Laura L. Bromlow is a Certified Elder Law Attorney with the National Elder Law Foundation. Bromlow Law, PLLC strives to enhance communication among family members and loved ones and to keep them all out of conflict so they can stay out of court. We want to help you keep your close circle safe!
Please contact our office today at (281) 665-3807 to schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.