Receiving an inheritance stirs mixed emotions. Part of you may be looking forward to paying off bills, investing a bigger nest egg for your future, or buying that big screen TV you've been eyeing. Part of you will be mourning the loss of a loved one and perhaps feeling guilty about benefiting from the inheritance.

When you find out you will be receiving money from an estate, no matter how large or small the amount, take a few weeks to let it sink in. Then gradually start thinking about how you'd like to use the legacy you've received.

Consider how you can make the most meaningful use out of the gift. You could:

• pay down debt, including your mortgage, loans and credit cards
• contribute to a Registered Retirement Savings Plan (RRSP) to build your retirement savings
• make a Registered Education Savings Plan (RESP) contribution to help pay for your children as education
• build your non-registered investment account
• purchase a new car or new appliances to make your day-to-day life easier
• take your family on a memorable vacation
• donate a portion of your inheritance to charity

Whatever your decision, remember that someone you loved wanted you to benefit from your inheritance. The best way you can honour him or her is to find a way to make the gift count, now and in the long term.

How long does it take to receive an inheritance?
Depending on the complexity of the estate, it may take anywhere from a few weeks to over a year for the executor to pay all outstanding debts and settle the estate.

During that time, one of the executor's duties is to keep beneficiaries informed of the progress of the estate.

The executor can be personally liable for all expenses and taxes owed by the estate, so he or she may disburse small amounts but hold onto the bulk of the estate until funeral costs, all debts, trustee fees and income taxes have been paid. After the final tax return has been filed and a clearance certificate has been issued by Canada Revenue Agency, the executor is free to distribute any remaining bequests.

However, disbursement of assets to beneficiaries may be delayed where:

• Your benefactor died without a will. Processing an estate without a will takes longer because the courts will appoint an administrator to settle the estate and the beneficiaries are predetermined by the intestacy rules
• The will is disputed. The estate may be tied up in court for many months if your benefactor's will isn't clear or disinherits family members protected by family law.
• The courts do not approve the will or parts of the will. During the probate process (where the executor obtains confirmation that he or she can act on behalf of the estate), the courts have the authority to reject an illegal or questionable will. This could result in the estate being treated as if there was no will at all.

These delays can be avoided with an up-to-date will prepared by a lawyer or notary, who will make sure the wording is legally binding. If you expect to receive an inheritance, talk to your benefactor and find out if he or she has a current, legal will. These conversations can be difficult to start, but will help ensure that your benefactor's wishes are carried out.

Will I be taxed on my inheritance?
Before you receive your inheritance, the executor ensures the taxes have been paid on the assets up to the date of death unless they are left to a spouse or common-law spouse. RRSPs and RRIFs are taxed as if they had been cashed in and assets with capital gains are taxed as if they had been sold on the date of death. After you receive the inheritance, you will be responsible for paying tax on any income (including interest, capital gains and dividends) earned in the future.

IN THE SHORT TERM
While you are developing a plan for your inheritance, it's a good idea to maximize your short-term earnings by investing in a money market mutual fund or high yielding savings account. Your money will remain easily accessible while earning higher interest than in a regular savings or chequing account.

IN THE LONG TERM
When you're ready to invest part or all of your inheritance for the long term, your selection of securities will depend on your risk tolerance and the length of time before you need the money. Generally, a low-risk investment has lower potential for growth. A more volatile investment has a higher potential for growth.

If you plan to access your inheritance within a year or two – or check your investments several times a day and can't sleep at night when one drops slightly – you will probably be more comfortable with safer choices, such as guaranteed investment certificates (GICs) and short-term bonds. If you have 10 years or more to invest, you could benefit from the growth potential of "riskier" investments, including stocks, mutual funds and long-term bonds.

Keep in mind that no matter how risk-averse you are it's crucial that the value of capital keeps pace with inflation. If it doesn't, the spending power of your inheritance will gradually be eroded

An independent financial advisor can help
Managing your investments effectively is the key to building your inheritance so it can benefit you or your children in the future. An independent financial advisor can guide you through your choices, pointing out the advantages and disadvantages of various strategies. He or she will take care of all the paperwork associated with the inheritance and make sure your portfolio complies with the latest administrative rules and tax laws. He or she can also provide educational resources to help you make well-informed investment decisions. Your financial advisor can also provide valuable advice, day-to-day portfolio management and help you keep your financial plan on track.

Give your inheritance the attention it deserves
Receiving an inheritance is an honour, a responsibility and an opportunity. Take the time you need to plan and resist making emotional decisions. It will allow you to make the most sensible choices for the long term. And, most importantly, it will provide you and your beneficiaries with a lasting legacy. And that's the most effective way to say "thank you" for a gift from someone you loved.

Thank you to your estate planning expert
Mackenzie would like to thank Sandra Foster, author of You Can't Take It with You: The Common-Sense Guide to Estate Planning for Canadians, for her invaluable assistance.