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How to properly manage an inheritance

According to some data, many baby boomers are poised to inherit a considerable sum of money from their parents when they pass away. For those people outside of this generation that sum will likely be smaller.

Nevertheless, many people inherit property, money and other assets. From a beneficiary's prospective, the key to managing these key estate planning tools is learning how to use them responsibly and not treat it as found money reserved for spending on frivolous purchases.

Baby boomers in particular are in line to inherit a combined $8 trillion from their parents. Much of this money -- roughly a quarter -- has already been paid out.

According to data collected by the Center for Retirement Research at Boston College, the median inheritance reaped by baby boomers is around $64,000. Some of the wealthiest baby boomers, however, will bring in an average of $1.5 million. Unfortunately for non-baby boomers, the tough economic climate has generally taken a bite out of their future inheritances for now.

Regardless, these are significant amounts of money, and are left to the beneficiaries for a reason. They must then tackle the task of incorporating this money into their existing financial plans.

Many financial planners would advise a beneficiary to shy away from using the money quickly to meet short-term financial goals, like purchasing a new vehicle or completing renovations to a home. Tending to these goals might hinder the long-term stability that can come with this kind of money, liking funding retirement.

Just like many elements of an estate plan, an inheritance will be subject to taxes. Most financial planners would suggest that beneficiaries pay these taxes up front so it does not dog them for years to come.

If you are a beneficiary that has not yet received the inheritance, pay not attention to how much you're in line for. This sum can change drastically with the tides of the markets. A beneficiary should not count on his or her inheritance money to survive, rather, treat it as supplemental cash for retirement.

Source: CNBC, "What to do with an inheritance? Save first, then splurge," Sharon Epperson, April 3, 2012

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