Baby boomers stand to inherit some $10 trillion from their parents’ generation.

That’s the good news. The bad news is that heirs sometimes squander their newfound fortunes, feel so guilty and undeserving that they pass up opportunities or act too quickly to make good financial decisions.

How can you make the most of your windfall? Follow these 10 steps for managing your inheritance so it improves your life—and honors your benefactor: Click here for more information on saving and investing.
 

1. Take your time.
Some 40 percent of baby boomers who have received an inheritance of at least $50,000 made a financial decision about that money in less than a week.

Don’t act fast. There’s no law against parking your birthright in a liquid account while you decide what to do with it. In fact, it may make sense to sit tight on your cash for three to 12 months before making a move.
 

2. Beware of predators.
Nothing can make the phone ring like a windfall.

You’ll hear from everyone—from the life insurance salesman who’s pitching annuities to your long-lost cousin who wants to start a business. Take it a step at a time, and don’t jump into opportunities.
 

3. Revisit your financial goals.
Money’s a tool. Make it work to move you toward your goals.

So what’s your goal?

• To retire early? I’ve worked with people who inherited $1 million and wanted to quit their jobs.

  But a conservative spending rate, to ensure that you don’t run out of money during your lifetime, is 4.5 percent. That’s $45,000 a year—most likely not an income that will support the lifestyle you desire.

  So don’t quit your day job before you do the math.
   

• To cover the kids’ college educations? Consider investing in a 529 plan. These 529 plans are state-managed education investment programs that give you tax-free gains on money you put aside and eventually use for education expenses. Some states even give you a tax deduction on the money you put into a 529 plan.
   
• To buy a new home? Don’t put your whole inheritance down on a house. Instead, use some of your newfound wealth to cover a down payment of 20 percent, the minimum needed to avoid paying mortgage insurance premiums. Invest the balance.

  Chances are, you can make a greater return investing the bulk of your inheritance than you’d save on interest by paying off your home mortgage now. Plus, the interest payments will reduce your tax burden.

4. Rethink the restaurant.
I don’t recommend that heirs start a business late in life if they’ve never run their own business. It can take 20 years to make a business successful.

One dream that many heirs seem to share is to start a restaurant.
I recommend that you work in a restaurant first to see whether you like it. Sometimes a dose of reality makes people reconsider the ‘glamour’ of a dream business.
 

5. Revisit your risk tolerance.
Investing fundamentals don’t change, regardless of the size of your portfolio. But an inheritance might very well change your risk tolerance and portfolio allocation.

Heirs who decide to live off the income from their inheritance might develop a very low-risk tolerance. People who see themselves as stewards passing the money on to the next generation may have a high tolerance for risk. If you already have $10 million, a $2 million inheritance might not change your strategy at all.

Whatever the case, when you receive an inheritance, it’s a good idea to reevaluate your asset allocation and revise your portfolio.

The larger the inheritance, the more complicated financial planning becomes. And the smaller the inheritance, the more important planning is because a small amount can quickly slip through your fingers.
 

6. Keep what’s yours yours.
Commingled funds look like "theirs"—not his or hers—in a divorce. So if there’s any chance of an upcoming divorce, keep your inheritance in a separate account.

If you don’t want your soon-to-be-ex spouse trying to capture half your inheritance, segregate those funds.
 

7. Don’t count your inheritance before it’s distributed.
In Hollywood, the reading of the will seems to be followed immediately by the distribution of funds.

Not so in real life.

Federal tax returns on an estate are payable nine months after the benefactor’s death, so there’s nine months. In the meantime, beneficiaries might get some income, but they won’t get a large distribution unless there’s an emergency.

So when can you count on the cash?

Experts typically say that between nine and 12 months after your benefactor dies, there should be a fairly significant distribution. The final distribution could occur as long as two to three years after the grantor’s death.
 

8 Hire a good accountant.
Inheritance tax is paid by the estate, so by the time you get your $2 million, $250,000 will already have been paid out.

Still, the tax implications of inherited investment vehicles are complicated, to say the least. And a significant windfall is likely to change your tax strategy. So spend some of your new wealth on a good tax accountant.

9. Invest in a therapist.
A windfall can be emotionally disorienting. Newfound wealth can cause heirs to feel guilty and undeserving—or to go to extremes in spending their new wealth. Relationships with family and friends can suffer. A good counselor can help you come to terms with your money—and your emotions.
 

10. Get your own estate in order.
Many people don’t set up an estate plan until they receive an inheritance.

People tend to believe that they’re immortal—until their own father dies. Receiving an inheritance is a good reminder to plan now so your heirs are taken care of. Remember, if you don’t have an estate plan in place, you don’t have any control over the way your money is distributed.

Plus, without a great estate plan, taxes can eat a significant portion of your estate. So while you’re making plans for your inheritance, plan for your heirs’ as well.
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