The so-called great wealth transfer has been brewing for years as the historically affluent baby boomer generation begins passing on their estimated $68 trillion worth of assets.
Over half of millennials are expecting to receive an inheritance, recent research shows. Many will likely be disappointed to find out they're not getting one, or getting as much as they hope. But if you are going to benefit from a windfall, it's wise to get ready.
1. Talk about what to expect, and make a plan for cash coming your way
A person leaving an inheritance may or may not decide to tell the recipient that anything is coming their way. But families who have these conversations may put the recipient in a better position to manage whatever the inheritance is.
CFP Danielle Miura, who specializes in planning for those in the "sandwich generation," or people who care for older relatives along with their own offspring, encourages clients and their families to discuss the topic in advance. Part of that talk: What it could mean to get an infusion of cash.
"We talk about knowing what options are available to you because if they have a lump sum of money or assets, they have more options, but those options sometimes have more trouble than what they originally thought," she says.
Aside from potential tax obligations, a cash inheritance may sound like a sweet deal for the recipient. But receiving a major gift in cash can make you more vulnerable to scammers or even family members who may want to take advantage of you, Miura warns.
That's not to say she recommends against folks giving cash inheritances. But knowing that cash is coming in rather than less liquid assets like a house or stocks can help the recipient better prepare.
"Talking with the parent or the individual, and talking with the person receiving the assets, can help plan how to use them, so they're prepared and know they're going to receive those assets."
2. To avoid 'unfortunate decisions,' give yourself time to process
Receiving an inheritance, especially a substantial one, can be exciting. But if it comes as the result of the death of a loved one, it can introduce a flurry of complicated emotions.
"Many people don't realize that as they're going through the grieving process, they may make unfortunate decisions," Miura says.
Even if you know an inheritance is coming your way, Miura recommends recipients take their time to really process everything that's happening before they make any major financial decisions.
"I really talk with clients about taking whether it's a couple months or six months," she says. "Just set the assets aside. Keep it in whatever account that you want. Just set it somewhere so you can grieve properly and make decisions that are right for you."
Along with the expected emotions around the death of a loved one, feelings about the money itself can create an emotional conundrum for an inheritance recipient. Sometimes people feel guilty about receiving an inheritance based on the assumption that you should work hard to earn money, Miura says.
While a financial planner can help answer any immediate questions about handling an inheritance, Miura also recommends financial therapists, grief counselors or other professional help to address the emotional side of losing someone you love and benefiting from their passing.
3. Cover your basics, and then focus on your values
The question of how to use your inheritance will be up to you and may depend on the amount and type of assets you're receiving. In general, Miura typically starts with the basics when clients are looking for advice. She'll ask first if they have an emergency fund and any high-interest debt that could be paid off.
From there, Miura suggests focusing on what matters most.
"What's more valuable to you? Paying off the home that you're currently living in or putting money in your retirement fund or going on a vacation?" she may ask a client.
In general, she suggests that you use some of your inheritance purely as a present to yourself, to fund a vacation, for example, or otherwise do something you love — because after all, an inheritance is a gift.
"Just because your parents told you, 'Don't ever buy an expensive car, don't ever put money toward yourself, be really frugal,' your parents would still want you to be happy, right?" she says. "Putting a percentage of that money towards something that makes you happy will help you create memories and be grateful for the money that you have."
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