A Short-Term plan for managing an Inheritance or New Wealth
Face it: the bigger your inheritance or new wealth, the more your life has changed? and you've had no chance to prepare for those changes.
So what should you do? Sit tight. Let the impact soak in while you take the time to decide what you want to do and what role your new wealth will play in your life. In all likelihood, the only decisions you'll regret when you acquire new wealth are ones you made too quickly.
Park your money in a safe, liquid account while you sort through your investment and lifestyle options.Common choices for short-term investment include term deposits, commercial bills, bank bills, at call bank savings accounts and cash investment trusts.
While the returns may be relatively small, your money will still be working for you. Say you receive $500,000 as a lump-sum. If you place your money for six months in an account yielding five per cent per annum, you'll earn approximately $12,500 in interest.
Just be sure to choose a liquid investment i.e. one you can access fairly quickly. (A bank account is liquid; a holiday house? not so much.) Once you develop long-term financial plans, you'll start shifting money into investments with higher returns, so ready access to your funds is important.
Certain investments that reduce your tax burden might be a good choice, but only if they fit your overall investment and lifestyle goals. So first get help determining the short-term tax effects of your new wealth. Later you will create broader strategies to minimise the long-term tax effects.
Keep in mind a variety of factors can influence taxes. An inheritance might not change your tax situation, but if you sell a business or property, your taxes are likely to be significantly higher than what you are accustomed to, especially in that fiscal year. A major key to managing your new wealth properly is to fully understand your new tax situation, make plans to minimise your tax burden, and most importantly to know exactly how much money you'll have left to work with once taxes are paid.
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