What To Do With an Inheritance?

By: Sharon Epperson, CNBC Personal Finance Correspondent

Baby boomers could stand to inherit more than $8 trillion from their parents and, according to one estimate, more than a quarter of that money has already been doled out.

So what should you do if a windfall lands in your lap?

You may receive a considerable sum. The median inheritance is about $64,000 per person, according to the Center for Retirement Research at Boston College. The wealthiest boomers will inherit $1.5 million on average. The estimates are based on data collected before the financial crisis, but still these researchers believe future inheritances would be reduced only temporarily until the economy recovers.

One of the first steps in making the most of an inheritance is to outline your financial goals. With an inheritance, boomers are likely able to fully fund their own retirement and may be able to pass on money to their own children.

Outline Short- and Long-Term Goals

"Look at your long-term and short-term goals," advised New York-based certified financial planner Stacy Francis, president of Francis Financial.

The biggest mistake is to rush out and spend your inheritance on short-term goals — like buying a new car, paying for a home renovation or going on a long-awaited family trip.

"If you plan out how much the cost would be for the short-term goals," Francis said. "You may realize that long-term goals of retirement may not be achievable if you splurge too much immediately."

Pay All Taxes Immediately

Frank Troise, senior portfolio manager at SoHo Asset Management in San Diego, suggests paying the taxes on an inheritance up front. By doing so, he said, "boomers can alleviate the tax burden all at once and remove the government as a partner in the financial planning process going forward."

Don't Count On the Money

Most importantly, inheritances should not be counted on as a silver bullet for your money woes or boost your retirement savings. The Center for Retirement Research at Boston College found that 70 percent of the estimated average for inheritances represents prospective amounts. Market volatility can have a substantial impact. Plus, boomers' parents may pass on less money if their own retirement needs are greater than expected.

Several factors could deplete an anticipated windfall, said Christine Benz, director of personal finance at Morningstar. Seniors are living longer, interest rates remain low, and many investments are still emerging from a bear market.

Even for children of affluent parents, Benz said, "the key message is don't plan on an inheritance."