There are many ways to come into a large amount of money. The most common is by inheritance. Literally millions of Americans and thousands of Napa Valley residents will be inheriting significant assets in the near future from aging parents and others.

If you’re the beneficiary of a large inheritance, you may find yourself suddenly wealthy. Remember “wealth” is a relative word. Even if you expected the inheritance, you may be surprised by the size of the bequest or the diverse assets you’ve inherited.

You’ll need to evaluate your new financial position, learn to manage your sizable assets, and consider the tax consequences of your inheritance, among other issues.

It’s important to determine how wealthy you are once you receive your inheritance.

Before you spend or give away any money or assets, decide to move, or leave your job, you should do a cash flow analysis and determine your net worth as a first step toward planning your financial strategy.

Your strategy will partly depend on whether you have immediate access to, and total control over, the assets, or if they’re being held in trust for you. In addition, you need to know what types of assets you’ve inherited (e.g., cash, property or a portfolio of stocks).

When you inherit money and assets through a trust, you’ll receive distributions according to the terms of the trust.

This means that you may not have total control over your inheritance as you would if you inherited the assets outright. With a trust, a trustee will be in charge of the trust. A trustee is the person who manages the trust for the benefit of the beneficiary or beneficiaries. The initial trustee was named by the individual who set up the trust. The trust document may spell out how the trust assets will be managed and how and when trust income and assets will be paid to you, and it will outline the duties of the trustee.

When you inherit a large lump sum of cash, you’ll be responsible for managing the money yourself (or hiring professionals to do so).

Even if you’re used to handling your own finances, becoming suddenly wealthy can turn even the most cautious individual into a spendthrift, at least in the short run.

Carefully watch your spending. Although you may want to quit your job, move, gift assets to family members and to charity, or buy a car, a house, or luxury items, these actions may not be in your best interest.

You must consider your future needs, as well, if you want your wealth to last. It’s a good idea to wait a few months or a year after inheriting money to formulate a financial plan.

You’ll want to consider your current lifestyle, determine your future goals, formulate a financial strategy to meet those goals, and learn how taxes may reduce your estate.

Once you’ve done a cash flow analysis and determined what type of assets you’ve inherited, you need to evaluate your short-term and long-term needs and goals.

For example, in the short term, you may want to pay off consumer debt such as high-interest loans or credit cards. Your long-term planning needs and goals may be more complex. You may want to fund your child’s college education, put more money into a retirement account, invest, plan to minimize taxes or travel.

In general, you won’t directly owe income tax on assets you inherit except for IRA or annuities.

However, a large inheritance may mean that your income tax liability will eventually increase. Any income that is generated by those assets may be subject to income tax, and if the inherited assets produce a substantial amount of income, your tax bracket may increase.

With your inheritance, you may face a whole new set of investment complexities. You may need help to formulate a new investment strategy.

The best advice is to take your time. Remember that there’s no rush. If you want to let your head clear, put your funds in an accessible interest-bearing account such as a savings account, money market account or a short-term certificate of deposit until you can make a wise decision with the help of advisers.

Once you claim your inheritance, you may want to give gifts of cash or property to your children, friends or other family members. They may come to you asking for a loan or a cash gift. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members.

New-found wealth may create great discomfort for you. I found a checklist called “Financial Windfall Checklist” that may help organize your thoughts. Contact my office for a free copy.

Notable Quote: “Sometimes the poorest man leaves his children the richest inheritance.” — Ruth E. Renkel

Mills is a registered investment adviser and certified financial planner. Contact him at 1030 Seminary St., Suite D, Napa, 94559, 254-0155 or suntrm@aol.com.