Receiving an inheritance can feel like a mixed blessing.
It means that someone you love is gone.
It also means that someone cared enough about you to want to financially provide for you after they were gone.
But receiving a large sum of money – potentially unexpectedly – can feel overwhelming. You may not have had a plan for it. You know you should invest it, so it may be tempting to simply invest it all in whatever investment vehicles you have currently.
That may mean you end up with far less overall than your loved one wanted you to have.
So, what should you do if you receive an inheritance?
As soon as possible, set up a meeting with your Certified Financial Planner®.
Why?
Because having excess funds in the wrong place can cause a tax nightmare, where the government gets much more than they should.
There are many ways to strategically minimize what the government takes.
And beside the obvious benefit of keeping more money in your pocket, your CFP will be able to change your financial plan to better reflect your new reality.
Depending on the amount of the inheritance, it might not seem like much would change – but you would be surprised. A lump sum of money can open doors that may not have made sense to open in your previous financial reality. For example: purchasing a guaranteed pension for life: (https://blog.pulsewealth.ca/do-you-worry-about-outliving-your-money-in-retirement/)
One of my clients recently received an unexpected inheritance. It was not a life-altering, quit-your-job sort of amount, but it was enough that she knew to reach out to me. She assumed she would be putting it all in her RRSP.
She was wrong.
We ran some scenarios, and I asked her some questions about her priorities. She was shocked that the amount she was receiving could cause such a cascading change in her financial plan. (It is all about being strategic!)
For her, it made the most sense to max out her RESP grant to get the most free money from the government for her two children’s education (which has always been a top priority for her). There would then be enough left over for her to pay up front for the dream family vacation that she was saving for when her kids would be old enough to enjoy it. Paying up front offered quite significant savings (a few thousand, at least) for something that she was completely set on doing anyway. That then freed up a chunk of money in her monthly cashflow that she could put towards one of her other financial goals, which substantially shortened the time to achieving it.
We also worked out how much she should put into her RRSP to maximize the tax benefit for her income and goals.
Overall, she ended up on track to achieve several of her financial goals much sooner than anticipated and managed to keep much more of the amount she received than she would have otherwise.
When I presented her with her new financial plan, she teared up.
I was taken aback – it was a great plan, after all!
She explained that it made her happy, because she knew that her grandfather - himself an astute financial man who was diligent with his hard-earned money - would have been proud.
If you’ve received an inheritance, or know you will receive one in the future, book a call to ensure that you make the most of it.