What should you do if you have just inherited a lot of wealth?
At some point in time, all of us have dream of inheriting a lot of wealth from a distant relative. But seldom do such things happen. Imagine out of the blue, your 99-year-old millionaire aunt passes away, leaving you a fortune of worth SG $1 million. What would be your next move? Would you convert all the assets into liquid cash and start splurging right away or do something differently? Inheriting a fortune could actually determine if you will have a comfortable retirement or a stretched one. But if you fail to utilize these funds effectively, then you could be missing out on an opportunity of a lifetime. And not everyone will inherit large sums (or anything at all for that matter). So, be sure to make the most of the wealth that is willed to you.4
Understand what you’ve inherited
It is natural to feel overwhelmed by the huge amount you have inherited. However, there is a high likelihood that your inheritance money is segregated across different assets such as the house, rental property, bonds, jewellery, trust, and cash deposits. So, the first step should be to understand what all you have inherited and what part of it is taxable.
If you have inherited a trust, then a trustee will manage the windfall from the trust. The trustee is responsible for managing and distributing the assets held in the trust according to the trust’s language, so you should carefully read the trust so that you understand the trustee’s responsibilities.
The good thing about inheriting assets is that they are not taxable in Singapore. However, if you start generating income with the help of the assets you have inherited then that income will be taxable. So, if you plan on renting out the house your aunt left for you, then be prepared to pay taxes for it.
Pay off your debts
Depending on the amount you have inherited, make effective use of these funds to pay off your debts. Consider the inheritance to be a divine intervention, if you are believer, or perhaps a stroke of luck. Paying off your pending credit card bills and personal loan debts should be the first thing you do with your inheritance money. The reason for this is that the interest you will be paying on these debts will be much higher than the interests on a savings account. So, priorities payment of debts over saving. Once you’re done paying, you would be in a better place to save. You could even consider building a rainy day or an emergency fund.
Invest a portion of your inheritance
The next step could be to invest a part of your inherited amount. Make an appropriate investment strategy based on your financial goals. For example, if you plan on retiring at the age of 40, then your investments could revolve around helping you generate as much income as possible until retirement. You would have estimated a specific number that you want to arrive at before you retire. You could allocate some funds in stocks, bonds, mutual funds, insurance policies or in a CPF account to reach that goal. If there is a house or any other real estate property that you have inherited, you could consider renting it to increase your overall annual income.
Refrain from splurging
It can be very tempting to splurge all the money you have, especially when you inherit a lot of wealth all of a sudden. But that would result in poor financial choices. If you want to have a sustainable financial plan, you should refrain from overspending your funds. Instead, you should direct them towards potential investment options so that you can grow the wealth you have.
Consult with a financial advisor
If you are relatively new to handling money matters, you could consider hiring a financial advisor to help you take care of the wealth you have inherited.
Oh and by the way, congratulations on that inheritance!
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