Inheriting $1 million may sound like a blessing.But most people experience confusion, anger, sadness or some combination of the three, according to the Financial Planning Assoc.If you are a beneficiary grieving the loss of a loved one, here are some simple steps to make sure that the emotional toll does not end up a financial one, as well.Take a breather. Whether the amount is small or large, chances are that your inheritance will be unexpected. Emotions tend to run high. Avoid snap decisions. Rather than quit your job or buy a new sports car, take a step back and think about your goals.Seek assistance.A qualified financial professional can offer sound guidance, especially if you are not used to managing large sums of money. An advisor can help you develop a clear understanding of how your inheritance affects your current and future financial situation and develop a plan of action.Safeguard the money.In the meantime, put your inheritance in a safe place. Instead of depositing cash into your personal checking account, consider putting the funds into a money market deposit account or a certificate of deposit. The Federal Deposit Insurance Corp. insures bank deposits up to $250,000 each.Be wary of taxes.The value of inheritances is generally excluded from gross income. After that, calculating your tax liability can be tricky. Say you inherit a portfolio of diversified securities. Its value, known as its cost basis, is equal to the fair market value of the assets on the date of the decedents death. If that value rises because of dividends, interest or appreciation, you can be liable for capital gains taxes on the increase if you sell. Seek out a tax advisor and financial planner to help you make sense of your sudden windfall.Spend wisely.Remember that sports car' Put it on hold. Perhaps the largest benefit you can receive from an inheritance is to reduce your current debt. Pay off car loans, student loans, credit card debt or a mortgage. Consider using your inheritance to build a rainy day fund for emergencies. Advisors usually recommend that you have enough liquid assets on hand to cover three to six months worth of living expenses.Think about saving some money.Why not add to your retirement account' For 2015, the contribution limits for a 401(k) plan and an individual retirement account are $18,000 and $5,500, respectively. Higher contribution limits are available for those over age 50.If you have children or are planning on them, you may want to put your inheritance into a college savings fund. There are a number of tax-advantaged plans that allow you to save money for education. Returns are generally tax-deferred and may be eligible for state tax deductions. Moreover, if you are a beneficiary attending college, distributions are generally not subject to tax when used for qualified education expenses, including tuition, fees, books and room and board.By taking these initiatives, you will have more time to figure out the future and hopefully count on your inheritance to pay dividends for years to come.Kimberly Nguyen is an associate consultant withWipfli Hewins Investment Advisors, LLC,in Rockford, Illinois.SEE ALSO:A financial planner helps a 29-year-old decide what to do with her savings every monthJoin the conversation about this story
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