If you are fortunate enough to inherit property from a relative or friend, then you may be confused about what to do with your windfall.  Unfortunately, people will seemingly come of out of nowhere and, with good or sometimes bad intentions, offer to help you invest your inheritance by selling you different types of financial products.

Before making any rash decisions about what to do with your inheritance - such as buying a bigger house, a vacation home or a Ferrari - slow down, take a step back, and look at your overall financial picture.

  Ideally receiving an inheritance is an opportunity for you to get your financial affairs in order and create a lasting a legacy for your own family.  If these are your ultimate goals, then consider the following five tips:

1. Keep your inheritance safe for the short term.  Once you receive your inheritance check, temporarily park the funds in a safe place.  In general cash, CDs and municipal bonds are good ways for you to invest your inheritance for the short term until you can move on to formulate your long term financial plan.  If you are married, then you will need to consider whether you want to title your inheritance in joint names with your spouse or keep the funds in a separate account in your name only.
2. Set up an emergency fund.  If you don't already have one, then set up an emergency fund that will cover at least six months of your expenses.  If you already have an emergency fund, then consider adding to it to cover at least one year of your expenses.
3. Fund your retirement.  If you are not contributing the maximum to your 401(k) at work, then start contributing the maximum and, to the extent you find it necessary, use your inheritance to offset the reduction in your take home pay.  If your employer does not offer a 401(k), then start funding an IRA.  Be very careful if you have inherited an IRA and you are not the account owner's spouse.  Any withdrawals you take from a traditional IRA will be included in your taxable income during the year the withdrawal is taken.  You can limit the income tax consequences by only taking the required minimum distributions and leaving the balance invested inside of the inherited IRA. 

1. Hire professional advisors.  In order to develop a long term financial plan that will maximize the benefits of your inheritance, hire a financial advisor to help you analyze your current financial situation.  Your financial advisor will then help you build a good financial foundation including life insurance, long term care insurance, liability insurance, credit and debt management, retirement planning (see #3 above), and college savings.  Your financial advisor will also help you look into the future and plan for other long term financial needs and goals, such as purchasing a first or second home or starting a charitable foundation.  You will also need to hire an accountant to help you with income tax planning.
2. Make or update your estate plan.  If you don't already have an estate plan, then find and hire an estate planning attorney to get your own final affairs in order.  This will include signing a Last Will and Testament, a Revocable Living Trust, an Advance Medical Directive, and a Durable Power of Attorney.  If you already have an estate plan, then meet with your estate planning attorney to determine if your inheritance warrants the need for updating your estate plan to incorporate estate tax planning, asset protection planning, and other types of advanced estate planning.