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Advice to baby boomers on spending their $8.4 trillion inheritance.

According to recent research from The Center for Retirement Research at Boston College, 70% of baby-boomer households will receive inheritances worth a total of $8.4 Trillion. With an average of $300,000 for most inheriting households, and an average of $1.5 million for the wealthiest inheritors, the better part of a generation is expected to see a nice bump in their assets. The question, then, is what to do about it.

Ashlea Ebeling of Forbes recently approached the topic with a number of considerations, from warnings to ideas.

Consider Keeping it Separate. The first thing to take stock of is how your state handles inheritances. Most states consider an inheritance the separate property of the person who received it, as long as they keep it separate. So think carefully before you put the money into a joint account – or use it to make major improvements on a jointly owned home, for example. Keeping an inheritance separate can provide a level of asset protection — by keeping it eparate you also shield it from loss due to your spouse’s debts and/or lawsuits.

Special Treatment for Retirement Assets. If the inheritance is an IRA then you can use it to stretch out the withdrawals over your own life expectancy and in this way maximize the tax benefit on those funds. Don’t try to take the money out and redeposit in your own IRA. That’s not allowed. Instead, the IRA should be renamed. If you want to move it from one custodian to another, do so in a “trustee-to-trustee” transfer. In certain circumstances, you may even want to “disclaim” the account and give it to your children if you don’t need it.

Review Your Own Estate Plan. Whatever the inheritance, it is now part of your estate. A sizable inheritance could push you into estate tax territory. Even if you aren’t in danger of estate taxes, you will still want to review your current plan to account for the inheritance assets.

In the final analysis, receipt of an inheritance is one of those lifetime events that calls for proper assessment and planning.

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