After having dealt with the loss of a close friend or loved one, and the travails of the probate process, it might be tempting to head to the local mall or car dealership to go on a spending spree with your inheritance money. Before you do, it might be wise for you to look at your current financial situation before you do something regrettable!

First of all, you need to determine exactly how much you stand to inherit. In some estates (especially larger estates) you might receive several distributions before your receive your “final” distribution. Some assets might actually pass to you outside of the probate process, such as Individual Retirement Accounts [IRA’s]. There may be serious tax ramifications depending on how you decided to withdraw the money from these accounts. However these assets are finally distributed to you, you need to arrive at a firm number so that you can create a plan that will satisfy both your short-term and long-term goals.

Once you have a plan that addresses both short and long-term goals, write the short-term goals next to the long-term goals. While it may seem like a great idea to upgrade your home, buy a new car or send your kids to a great private school, you owe it to yourself to weigh these goals against your longer-term needs. Given today’s economy, your retirement needs and the higher education needs of your children may very difficult to meet. This inheritance might be your only opportunity to achieve them!

Next, you need to establish an “emergency” fund. If you do not already have one, you need to set aside an amount equal to six months of your regular expenses. Your emergency fund should be put in a short-term, fixed income investment vehicle such as a money-market account.

Only after you have your “plan” in place should you set aside a fixed amount for the splurge that you so richly deserve. This fixed amount should be placed in a money market fund, certificate of deposit or interest bearing checking/savings account. It is very important that you exercise some restraint here. Once that fund is gone, you simply cannot allow yourself to dip into your “plan” money!

Now it is time to invest your “plan” money. If you are savvy, you might be able to come up with your own plan or you may want to consult with a professional. However you chose to proceed, the key to your success is diversification. Your plan should include stocks, bonds, and a rich array of Exchange Traded Funds [ETF’s] that spread your risk among many sectors. While you want to see your fund grow, it is more important to protect the principal against the volatility of any one sector.

A year from now you will wish you had started today.

If you have been left an inheritance by a friend or family member, you should be aware that the downturn in the real estate market will probably affect the amount that you stand to inherit and the amount of time it will take for you to receive your inheritance.

The vast majority of American probate estates contain one or more pieces of real property. Real property is developed or undeveloped land commonly known as “real estate.” All of the real and personal property in an estate must be sold before the estate can make a final distribution to the heirs. While the possibility of a preliminary distribution does exist, more and more prudent Personal Representatives are waiting until all of the real property is sold in order to avoid personal liability should a property sell for less than the appraised amount.

That brings us to the first potential delay. When a probate estate is opened, the Court will order an Inventory & Appraisal of all of the estate’s assets. As these appraisals age, they are less and less likely to portray a realistic sale price. In California, if the proposed sale price is less than 90% of the Court’s original appraised value, the attorney handling the estate will have to petition the court for a reappraisal of the property before the sale can be approved. This can add weeks or months to the already slow probate process.

This first delay would probably be welcomed by most heirs because it assumes that there has been an offer made to purchase the property! With the current glut of properties on the market and the increasing rates of foreclosure (even if good neighborhoods), offers to purchase are fewer and farther between! Real estate professionals across the nation will tell you that the current wave of foreclosures has added to the already high levels of market inventory. Increased inventory, coupled with a tightening of lending standards has lead to longer sales cycles.

When property values were rising, a typical probate estate would take between 9 to 12 months to close. These days, depending upon the market where the property is located, estates are taking 12 to 24 months to close and that is often only after reducing the listing price on the property several times in order to find a buyer.

If you are the person charged with administering the estate, it might be wise to remember the old maxim: a bird in hand is worth two in the bush. While it may not always be intelligent to “race to the bottom,” it still might be prudent to “lock in a number” and get the estate closed, even if it is for less than the heirs were hoping for. You don’t want to be forced to use phrases that contain the words “should’ve” or “could’ve” when explaining your decision to the heirs.