Receiving an inheritance is a blessing, but also comes with challenges. While it often comes during an emotionally difficult time, a thoughtful approach to managing this financial windfall can transform it into a meaningful legacy that provides lasting benefits. 

Unlike generations past, inheritances today are becoming less common as people live longer, often spending down their assets in retirement. When they do occur, the financial landscape is more complex than ever, with various investment options and family considerations to navigate.

This guide offers practical advice for managing inherited wealth with purpose.

First Steps When Receiving an Inheritance

Taking the right initial steps can make a difference in how effectively you manage an inheritance. Rather than rushing into spending decisions, follow this strategic approach:

1. Contact the Estate Planning Attorney

Your first call should be to the attorney who handled the estate planning for the deceased. This is critically important because:

  • You may have inherited more than just money. You might also have inherited the position of successor trustee or executor, which comes with significant responsibility.
  • You have fiduciary liabilities. As a successor trustee or executor, you have legal obligations to properly distribute assets according to the will or trust.
  • The attorney can guide you through the legal process. They can explain what documents need to be filed, deadlines that must be met, and the proper procedures for administering the estate.
  • They can help interpret the deceased’s wishes. If there are any questions about how assets should be distributed, the attorney who created the estate plan will have the best insight into the deceased’s intentions.

2. Contact the Accountant

After understanding your legal responsibilities, your next call should be to an accountant, preferably one who worked with the deceased. This step is crucial because:

  • You need to understand tax implications. The accountant can help you determine what taxes might be due on the inheritance itself and any ongoing tax liabilities.
  • The estate may owe final taxes. Before distributing assets to beneficiaries, you need to ensure that the deceased’s final tax return is filed and any taxes owed are paid.
  • Outstanding debts must be addressed. The accountant can help identify any outstanding debts of the deceased that need to be paid from the estate before assets are distributed.
  • You need to know how much you’ll actually keep. After accounting for taxes and debts, the amount you’ll actually retain could be significantly different from the initial inheritance amount. 

3. Contact a Financial Advisor

Only after you’ve consulted with both the attorney and accountant should you contact a financial advisor. At this point, you’ll have a clear picture of what you’re inheriting and any obligations attached to it. Your financial advisor can help you:

  • Develop a long-term plan for the assets. Based on your current financial situation and goals, they can help you determine the best ways to integrate the inheritance into your overall financial plan.
  • Decide which inherited investments to keep or sell. If you’ve inherited stocks, bonds, or other investments, your advisor can help you determine which ones align with your financial goals and risk tolerance.
  • Avoid timing mishaps. Selling inherited assets too quickly or too late can have significant tax implications. Your advisor can help you time these decisions appropriately. 
  • Create a strategy for inherited retirement accounts. If you’ve inherited an IRA or other retirement account, special rules apply that your advisor can help you navigate.

This methodical approach helps you avoid common pitfalls like spending money that might be needed for taxes or making investment decisions before understanding your full financial picture.

Long-term Planning for Inherited Wealth

Once you’ve addressed the immediate legal considerations of your inheritance, it’s time to develop a long-term strategy for these assets. This isn’t just about preserving wealth — it’s about integrating these resources into your broader financial goals and values.

Aligning Inherited Assets with Your Financial Goals

Inherited wealth provides an opportunity to reassess and potentially accelerate your financial journey. The key is ensuring these assets work in harmony with your existing financial plan rather than being a separate entity.

Start by considering your life stage and primary objectives, like:

  • Building retirement savings
  • Funding education for children
  • Buying a home
  • Achieving financial independence

Your inheritance should be strategically deployed to support these goals. For younger inheritors, this might mean using a portion of the inheritance to build a cash cushion or eliminate high-interest debt while investing the remainder for long-term growth. For those closer to retirement, it might involve bolstering income-producing investments or addressing gaps in retirement planning.

Timing Considerations for Managing Inherited Investments

When managing inherited investments, timing plays a crucial role in maximizing their value while minimizing tax impacts.

The step-up cost basis discussed above creates a unique opportunity. When you inherit investments that have appreciated significantly over time, your tax basis resets to the market value on the date of death. This means you can sell these investments immediately without incurring capital gains tax on all the appreciation that occurred during the original owner’s lifetime.

This creates an important planning consideration: If you inherit investments that don’t align with your risk tolerance or financial goals, there’s often little tax reason to hold onto them. Selling soon after inheritance allows you to reposition these assets according to your needs — without tax penalties that might have affected the original owner.

Conversely, if you decide to hold onto inherited investments but eventually need to sell them, be mindful of the potential capital gains implications. Any appreciation that occurs after you inherit the assets will be subject to capital gains tax when sold. If you anticipate needing liquidity in the near future, it might be more sensible to sell inherited investments sooner rather than later to minimize capital gains.

Creating a Sustainable Inheritance Strategy

Rather than viewing inheritance as a one-time windfall, consider developing a framework for how these assets will serve you and potentially future generations. This might include:

  • Creating a personal investment policy statement that outlines your objectives, risk tolerance, and time horizon for inherited assets.
  • Setting aside a portion of the inheritance for immediate needs or experiences that are important to you, while preserving the core for long-term growth.
  • Considering how the inheritance might be used to create lasting impact, whether through charitable giving, education funding for family members, or supporting important causes.
  • Regularly reviewing and adjusting your strategy as your life circumstances change. What makes sense for your inheritance right away might not be appropriate years later.

Remember that financial planning is deeply personal. Working with professionals who understand your unique circumstances can help you develop a tailored approach that maximizes the impact of your inheritance while respecting your individual values and goals.

Common Mistakes

Despite the best intentions, inheriting wealth can lead to unforeseen challenges and missteps. 

Many inheritors make impulsive financial decisions, purchasing expensive homes or cars, or even quitting jobs based on a temporary sense of wealth. Unfortunately, substantial inheritances can be depleted with surprising speed when approached without careful planning.

Others swing to extreme caution, keeping funds in low-yield accounts where inflation steadily erodes their value. Some maintain inherited investments out of misplaced loyalty (“Dad worked for this company for 40 years — I should keep his stock to honor him”) rather than making sound financial decisions.

Perhaps the most damaging are the family conflicts that emerge from unclear estate planning. Siblings often find themselves in painful disputes over distributions, perceived favoritism, or unexpected responsibilities as executors or trustees. These conflicts frequently cause permanent damage to relationships that far exceeds the monetary value at stake.

To avoid these mistakes, give yourself time before making major decisions and work with professionals who understand the legal, tax, and investment implications. Remember that your inheritance represents someone’s care for your future. Honor that intention with thoughtful management focused on long-term security rather than immediate desires.

Manage Your Inheritance with Purpose

Receiving an inheritance represents both an opportunity and a responsibility. While it may arrive during an emotionally challenging time, a methodical approach will help you honor this gift in a way that provides lasting benefit. 

The greatest tribute to someone who has left you an inheritance isn’t preserving exactly what they owned — it’s using their gift to meaningfully improve your life while reflecting the values they hoped to pass along with their financial legacy.

At Premier Financial Group, we understand the complex emotions and decisions that accompany an inheritance. Our team is dedicated to helping you navigate this journey with clarity and purpose, ensuring your inheritance becomes a meaningful part of your own financial story.