Inheriting investments can be both a financial blessing and a daunting responsibility, especially if you're new to managing finances. If you want to ensure your investments align with your sustainable and ethical values, here are ten actionable steps to help you navigate this situation with confidence and clarity.
- Take a Moment to Process
Inheriting investments often coincides with the loss of a loved one. Allow yourself time to grieve and process your emotions before diving into financial decisions if at all possible. Avoid rushing into any major moves until you feel emotionally ready to focus. Don’t be surprised if you find that you have an emotional attachment to an investment due to how the deceased felt about it, even if it may not be a great fit for you or your values.
- Understand What You've Inherited
Take an inventory of the assets you've inherited. Common types of investments include:
- Stocks and bonds
- Mutual funds or ETFs
- Retirement accounts (e.g., IRAs or 401(k)s)
- Real estate investment trusts (REITs)
- Annuities
Review any documentation related to these investments, including account statements and beneficiary forms, to get a clear picture of what you own. Pay attention to whether any investments already align with sustainable or socially responsible investing (SRI) principles.
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- Explore The Values that Matter Most to You
Take some time and think about which values you want to incorporate in your investment portfolio the most. Are there any companies or types of companies that you absolutely don’t want to own, under any circumstances (weapons, fossil fuels, private prisons, etc). Use our free questionnaire to help narrow it down https://www.yourstake.org/ui/visitor/wizard?advisor=Green-Future
- Meet with a Financial Professional
If you're unsure where to start, consult a financial advisor who specializes in sustainable or ESG (Environmental, Social, and Governance) investing. A professional can:
- Help you understand the nature of the investments
- Guide you through tax implications
- Provide advice tailored to your financial goals and ethical priorities
Look for a fiduciary advisor who prioritizes your best interests and shares your commitment to sustainability. Sustainable investing specialists will often have the CSRIC® designation.
- Research Tax Implications
Inherited investments often come with tax considerations. For example:
- Step-up in basis: For most non-retirement investments, the cost basis is adjusted to the market value at the time of inheritance, but this doesn’t apply to some types of trusts.
- Retirement accounts: Inherited IRAs or 401(k)s have specific rules for distributions and taxes, depending on your relationship to the deceased and the account type.
Work with a tax professional to ensure you meet legal requirements and avoid unnecessary penalties. Discuss strategies for transitioning assets to more sustainable investments without incurring excessive taxes. At Green Future Wealth Management, we have in-house tax specialists and actually prepare tax returns for our clients, so we can navigate custom tax transitions for our clients.
- Update Ownership of the Accounts
You’ll need to transfer ownership of the accounts into your name. This may involve:
- Contacting the financial institutions where the investments are held
- Providing necessary documentation, such as a death certificate and proof of identity
Follow the institution’s specific procedures to avoid delays. Use this opportunity to inquire about their sustainable investment options. If you are working with a financial advisor, this is where they can do a lot of the heavy lifting, but make sure that they are not going to make any changes that can cause you increased taxation!
- Evaluate Your Financial Goals
Ask yourself how these inherited investments fit into your financial plans. Consider:
- Does this inheritance alter your retirement timeline?
- Do you want to explore gifting to children or grandchildren using your inheritance?
- Do you want to give more to charity and do you have a plan to maximize tax benefits?
Your goals will help guide decisions about keeping, selling, or reallocating the investments.
- Diversify and Reassess the Portfolio
The investments you inherit may not align with your risk tolerance, financial goals, or ethical values. Review the portfolio to:
- Assess diversification (e.g., ensuring you’re not overly concentrated in one stock or sector)
- Adjust for risk based on your age, objectives, and commitment to sustainability
You may want to sell certain assets and reinvest in ESG-focused funds, green bonds, or other sustainable options, depending on your risk tolerance and timeline. A financial advisor is an excellent resource for this.
- Stay Informed
If sustainable investing is new to you, take time to learn the basics. Resources like books, online courses, or financial podcasts on ESG and impact investing can provide valuable insights. Staying informed will empower you to make smarter, values-driven decisions over time.
- Avoid Rash Decisions
Inherited wealth can be overwhelming, and it’s easy to feel pressure to act quickly. Resist the urge to make impulsive decisions like liquidating all investments or making risky trades. Take time to think through each move with a clear head and an eye toward moving your assets closer to your values.
Final Thoughts
Inheriting investments can significantly impact your financial future. By following these steps and seeking professional advice, you’ll be better prepared to manage this newfound responsibility and align your portfolio with your values. Remember, this is a process—take it one step at a time, and don’t be afraid to ask for help. Reach out to Green Future Wealth Management for a free consultation to discuss any or all of these 10 helpful tips.