Navigating the Financial and Emotional Challenges of an Inheritance

When you’re grieving the loss of a loved one, inheriting money can be complex — many recipients report feelings of guilt and shame or that the money is another reminder of their loss. When these complex emotions arise, it may make answering financial questions more difficult.

If you’re looking for ways to navigate the emotional and financial consequences of inheriting wealth, you’ve come to the right place. Read on for tips on how to navigate this transition.

First, do (almost) nothing

You’ll likely have questions if you’ve been named the beneficiary and find yourself with an inheritance or financial compensation. Don’t rush into anything, especially if you’re also experiencing an acute emotional loss. Take the time to grieve without feeling pressured to make important financial decisions. You can tackle these once you’ve had time to reflect on your feelings.

There is one task, however, that you should consider taking care of sooner rather than later: Speak to a tax or estate professional. This can help you understand the effects of your inheritance on your taxes. Although Canadians don’t pay an inheritance tax, there could be other changes to your tax status. If, for example, you inherit an income property, you’ll become responsible for the taxes on it. Have a professional walk you through anything of immediate concern.

Manage your emotional health

Receiving an inheritance can spur strong emotional responses, so it may help you to wait before making important money decisions. Instead, take some time to process your emotions.

Here are some of the emotional issues that may arise:

• Grief. Feelings of grief may be overwhelming if you’ve lost someone close to you. Take your time with this experience.

• Family disputes. It’s not uncommon for disputes to arise during the inheritance process. Similarly, there might be outside expectations about what you will do with your newfound wealth. Remember, you’re not on anyone else’s schedule.

• Anxiety or excitement. When you receive a large sum of money, it’s normal to have big feelings like joy or fear of ‘doing something wrong.’ After all, you may suddenly be in a position to make big financial decisions. You can allow yourself time to understand your feelings first and make thoughtful choices for what to do with your funds after.

• Identity questions. Sometimes an inheritance fundamentally changes a person’s (or family’s) financial picture. While you didn’t ask for something bad to happen to someone you cared for, you may feel a sense of shame about how you received the money, or you might feel others are viewing you differently now.

• Trust issues. You may worry that those around you are trying to exert control over your financial choices. Consider speaking to a financial professional or asking for the advice of a trusted friend.

All of these emotions can be extremely charged. You can take care by allowing yourself the time and space you need.

Begin your financial planning

Once you’re ready to make decisions or settle on what to do with your inheritance, it’s time to act. If you haven’t already discussed your position with a financial professional, you may consider doing so now for one or more of these steps.

Understand your assets

The first step is to understand exactly what you’ve inherited. In addition to cash or investments, you might have real estate or valuables like a car, heirlooms, or jewelry. Figure out if there are any liabilities or obligations, financial or otherwise, associated with your inheritance so that you know exactly where you stand. In particular, you’ll want to ensure you’ve filed the correct tax paperwork with Canadian Revenue Agency (CRA).

Consider your options

Receiving a financial windfall can be overwhelming, especially if you’re not already confident with money. Here are some ideas about what you can do with your inheritance.

• Pay off debt. If you’re holding a student or home loan, or have credit card debt, you might consider paying it down.

• Make a major purchase like real estate.

• Invest for retirement or education. Investment is a solid strategy to grow your money. Accounts, like registered retirement savings plans (RRSPs) and registered education saving plans (RESPs), let you invest for retirement or further education and come with some tax benefits.

• Fund a community project. If there’s a cause important to you or your loved ones, you might consider putting some of your inheritance towards it. You could make a donation, set up a foundation, or even fund a project outright.

You can choose one or more (or none) of these strategies, but whatever you do, you should make sure you understand the financial and tax implications. You might consider working with financial professionals to help you make the best decisions for you.

Set up your own estate plan

If you haven’t already, now is the time to establish your own estate plan, including updating your Will, so you can decide where your assets go should you become unable to make your own decisions or for after you pass.

Inheriting wealth can be a tumultuous experience. Enlist the help of trusted people in your life and allow yourself the time you need to make the best decisions for your circumstances.

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