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Inheriting Wisely

A windfall gain for anybody, particularly, in the form of an inheritance is of course the most cherished form of wealth. However, the problem arises when it is not planned and put to right use. The heir can be emotionally confused considering how best to make use of his benefactor’s gift. The intent behind the bequest should be acknowledged.

INITIAL STAGE

First, ensure that the property and assets get transferred to your name through mutation (change in title to incorporate names) wherever required. Thereafter, let the inherited funds lie in the savings account before diverting them anywhere. This gives you time to assess your needs and avoid hasty investments .

HAVE A CLEAR PLAN

Set up a plan that would help you reach your goals as soon as possible. For this, you need to integrate inheritance proceeds into your existing financial plan. Depending on the amount of inheritance , estimate how much you need to earmark for shortmedium- to long-term needs. Put the plan in black and white before venturing out to divert funds into various assets to optimise fund usage.

THE FIRST ROUND

Get rid of any kind of debt that you may have, such as a personal loan, credit card dues or even home loans. If your accommodation is rented then consider buying a house of your own. Else, see if you want to upgrade to a bigger home. Investing in real estate, even if it is a second home, can still be an option considering the rental income and the appreciation you would get in the long-run. This would only serve as an additional source of income and help further. Market-linked instruments, such as inherited stocks and mutual funds would need to be reviewed. See, if they are worth holding, especially stocks (some might be physical shares) as they would have the emotional values attached to them. The underlying strategy should be to integrate them into your existing portfolio with proper diversification across companies and industries with adequate risk and growth potential.

At times, some might be tempted to consider alternate investments such as private equity, real estate or hybrid products. Consider the reputation and schemes before putting your money in them. Real estate has low correlation with the stockmarket and, thus, could be a reason to diversify. However, initially allocate a small portion to start with.

WATCHOUTS

Remember, what you have inherited including property and other assets are tax exempted. However, after inheritance, if the total value of your assets exceed a certain amount, wealth tax needs to be paid. Also, income from inheritance proceeds once invested could attract tax accord ing to the nature of the investment. Selling off the inherited property or gold would qualify for capital gains. This could push your tax liability upwards. One needs to properly plan out for taxes before acting on them. Review your insurance needs for yourself and for your family. To keep up the same standard of living, you will have to up the life coverage through a pure term insurance plan and get health insurance for yourself and for your family. Choose a financial planner carefully, especially, choosing among the fee-based. This will prevent them from recommending products with high commissions.

AVOID MISTAKES

Curb your temptation to spend recklessly and avoid any impulsive buying. Let not the easy money be a reason to invest in schemes promising higherthan-normal returns.

CONCLUSION

Spend on yourself and your family and allocate an annual budget for it. Go for that long-overdue family vacation. And, above all, keep updating your Will for a smooth transition to your heirs, as the one you got.

Next To Come: Plan Well to Retire Early