Indebted Millennials Will Soon Inherit a Gold Rush of Wealth: 7 Ways They Can Manage It

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The Great Wealth Transfer will be life changing for millions of millennials set to inherit their parent’s assets when they die. According to Cerulli Associates, baby boomers and the Silent Generation will pass down a combined $84.4 trillion in wealth to younger generations.

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Though the idea of receiving a windfall because someone has died is somewhat morbid to contemplate, it’s an important reality to reckon with. If you’re expecting an inheritance that could change your life for the better, financially, you need to be prepared, and you need to be careful — especially if you’re in debt.

Take these steps to manage your potential gold rush of wealth when your elders pass on.

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Understand What You’re Inheriting

When preparing for an inheritance, or upon receiving it, you need to know exactly what you’ve been gifted. What assets are now under your management?

“Is it a pre-tax retirement account? There will be distribution requirements and taxes the beneficiary will need to factor in,” said Matt Sampson, CFP, senior investment advisor at Arnerich Massena. “Is it a taxable brokerage account? Those will get a step up in basis to the date of death valuation, representing a highly tax-efficient asset to inherit: You could turn around and sell a portfolio of stocks that had huge unrealized gains before death and pay no capital gains taxes after death. Are you inheriting real estate?”

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Do Your Values Align With Any Fellow Heirs?

You may not be the only one coming into money when your parents die. If you’re sharing an inheritance, you need to be in alignment with anyone who also has a stake in the assets.

“Do you and your siblings agree on the best path forward for this asset?” Sampson said. “Disagreements can present a unique set of challenges for equalizing the estate if one sibling wants to maintain real estate and the other wants to cash out.”

Keep Living Below Your Means

Whether you get a boatload of wealth passed down to you, or even just a small bundle, it’s crucial to not allow it to trick you into leading a more lavish life. Keep living below your means, even if means have increased.

“The secret to building wealth is living below your means,” said Melissa Murphy Pavone, CFP, CDFA, director of investments at Oppenheimer & Co. Inc. “As your income increases, lifestyle inflation creeps in. Avoid the urge to spend more as you make more. Save more. Invest the difference. Your future self will thank you.”

Analyze Your Cash Flow

A top goal when inheriting assets is to use them to build wealth. One of the first things you should do toward this goal is to analyze your cash flow.

“[This is] because if you don’t understand where your money is coming from and where it is going, you can’t adequately manage it,” said Stephen Kates, CFP, principal financial analyst at Annuity.org. “Begin with your gross income and categorize all money destinations, including taxes and savings. Many people have an unknown ‘miscellaneous’ bucket of expenses that can grow and shrink monthly and ends up being a black hole for cash. You don’t need to track every penny, but you should understand the types of expenses that capture your money.”

Sharpen Your Investment Education — New Money Could Make You an Easy Target

You’ll want to start or deepen an investing practice when you come into money, but you’ll have to be extra educated and careful. You could be an easy target for financial salespeople.

“When someone becomes wealthy, they suddenly become a target for advisors and financial sales professionals,” Kates said. “This isn’t necessarily a bad thing, but it is something that many people are unprepared for. Most millennials are not receiving direct mail, calls or emails from big financial institutions, but they will soon. Having an unbiased third-party advisor to help you build a rock solid financial plan is vital, but you may want to find one on your own, before they find you and pitch you the latest and greatest financial products.”

Set Goals and Aspirations

To prepare for new wealth, refocus on your financial goals and aspirations.

“Defining what you have today, and what you need tomorrow, will allow you to determine how to allocate your finances towards current and future needs,” Kates said. “Prioritize your wants and needs. Most people can only have a few big goals to prioritize financially before incremental goals will start to undermine the plan. Your ‘North Star’ goals will allow you to focus current and future resources toward the ones that make the most sense for your life.”

Help Your Parents Build Their Estate Plan, Before It’s Too Late

Perhaps the most important move you can make in preparation of an inheritance is getting it organized before it happens.

“Building a plan for your own legacy later in life is important, but first consider the legacy your parents and older relatives are preparing to leave,” Kates said. “Many baby boomers are learning first hand today how difficult it is to handle an inheritance from their own parents when there is a disorganized estate. Don’t let this happen to you. Encourage a dialogue to determine your relatives’ dreams and wishes for their own legacy.”

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This article originally appeared on GOBankingRates.com: Indebted Millennials Will Soon Inherit a Gold Rush of Wealth: 7 Ways They Can Manage It