I got an inheritance - what should I do with it?
I got an inheritance - what should I do with it?
You’re here because you need help understanding what to do with an inheritance.
I’ve got you. I’m Katherine. I’m a CERTIFIED FINANCIAL PLANNER™, a financial advisor for inheritance, and a fellow inheritor.
Keep reading for ESSENTIAL guidance on what to do with your inheritance and my tips for inheritors building a path forward after the death of a loved one.
Posted on October 29, 2024 by Katherine Fox.
I got an inheritance - what should I do with it?
Most people don’t have any idea what to do after getting an inheritance.
You’re trying to learn an entirely new skill set and figure out how to manage a significant amount of wealth on your own.
You can’t talk to your friends about it and how stressful it is. All they’ll hear is you bragging about having money.
You may have considered looking for an inheritance financial advisor to help.
In the meantime, you’re stuck with more questions than answers.
You might be wondering:
What’s the first thing to do with inherited money?
What to do with inherited money held in cash?
What to do if you inherit money in stocks, mutual funds, or ETFs?
How to handle an inherited house or investment property?
What to do with an inheritance in an IRA or 401(k)?
What to do if you inherit money and owe taxes? (And how to know if you will)
Luckily, you ended up here.
Keep reading for 6 ESSENTIAL tips for what to do with an inheritance.
You’re closer than ever to finding answers to your questions and moving forward with a tax-efficient plan to sell, manage, and grow your inheritance.
I’m Katherine. I’m a CFP® and a financial advisor for inheritance.
I’m here to help you through this journey, whatever your needs are.
If you’re trying to get up to speed, check out the 20 Terms Inheritors Need to Know or How to Talk to Your Parents About Their End-of-Life or Estate Plan.
And if you’re deep in the weeds and don’t know what to do next, schedule a FREE consultation to see how I can help you figure out what to do with an inheritance.
1.lWhat’s the first thing to do with inherited money?
Inheriting money is complicated.
There's the obvious "this could change my life" excitement, but it comes along with a heavy mix of grief, pressure, and guilt over receiving an inheritance. That's normal.
The biggest mistake I see is inheritors rushing into decisions in the weeks and months after they receive an inheritance.
To avoid falling into this trap, here's your game plan for the next few months:
Give Yourself Permission to Process
Your brain is juggling a lot right now. You might be grieving someone you love while simultaneously trying to figure out if you should quit your job or move across the country. That's way too much to process all at once.
Put your inheritance money somewhere safe (like a high-yield savings account, more on that later) and give yourself at least 3-6 months to just... be.
Many of my clients find it helpful to work with a grief counselor or therapist during this time. Having someone neutral to talk to about both your emotions and your money fears can be incredibly grounding.
Remember, this money isn't going anywhere – you have time to figure things out.
Build Your Money Team
You'll likely need some professional help to manage this wealth but don't rush into picking your team.
You want to meet a few different people and find the ones who get you. Remember these people work for you. You shouldn’t be settling for advisors who don’t understand you, your goals, and your values.
Your core team typically includes:
A financial advisor who specializes in inherited wealth (look for someone who regularly works with inheritors and understands the logistical and emotional challenges we face)
A tax professional who understands complex estates
An estate planning attorney
When interviewing advisors, ask them about their experience with inheritors your age.
Pay attention to how they communicate – do they talk down to you? Use confusing jargon?
The right advisors will meet you where you are and help you learn, not make you feel stupid for asking questions.
Get Educated (But Don't Pressure Yourself)
Knowledge is power, but don't feel like you need to become a financial expert overnight. Start with the basics:
Understanding your inheritance (what exactly did you inherit? Cash? Stock? Real estate?)
Tax implications of your inheritance
Fundamental investment concepts
Common pitfalls inheritors face
Your advisory team should prioritize your learning journey.
Set Ground Rules
While you're in this planning phase, establish some personal guidelines:
No major lifestyle changes for at least 6 months
No lending money to family or friends until you have a clear financial plan
No investments you don't fully understand
No major financial commitments without running them by your advisory team
These aren't permanent rules – they're training wheels while you get your bearings. Once you have a solid plan and team in place, you can start making bigger moves with confidence.
Remember, there's no rush.
The most successful inheritors I work with are the ones who took their time in the beginning to build a strong foundation. Your future self will thank you for being thoughtful and deliberate right now, even if it feels frustratingly slow in the moment.
You've got this, and there are people ready to help you do this right.
I got an inheritance - what should I do with it?
Keep reading to get educated and ensure you’re making the best long-term decisions with your inherited money.
2. What to do with inherited money held in cash?
Your inherited cash needs a safe, temporary home while you figure out your long-term plan.
My favorite options:
High-yield savings account
Money market account
It’s boring, but boring is good right now. You want a low risk of losing wealth while you're getting your bearings.
But here's the thing about cash: it's quietly losing value to inflation every day.
Inflation is like a slow leak in your financial tire.
So, you don't want to rush into investments but you also don't want to let your inheritance sit in cash forever.
When you’re ready, you should start working with your financial advisor to create a "cash deployment strategy”: a plan for gradually moving your cash into a diversified investment portfolio.
You may want to consider "dollar-cost averaging,” investing a fixed amount each month over 12-24 months.
Explaining dollar cost averaging:
If you inherited $5 million, you might invest $250,000 monthly for 20 months.
This approach helps reduce the risk of investing everything right before a market downturn and gives you time to get comfortable with seeing your money fluctuate in value.
Before you start investing cash, you should have a clear picture of your cash needs. Cash needed in the short term (1-3 years) should not be invested and should stay in a high-yield savings or money market account.
Think about what should be set aside for:
An emergency fund with 6-12 months of living expensive
Future purchases like buying a house, starting a business, or planning for kids
Pro tip: While your cash is sitting in those temporary accounts, make sure you're staying within FDIC insurance limits ($250,000 per depositor, per bank).
Sunnybranch Wealth partners with StoneCastle Cash Management to allow clients to invest up to $25,000,000 with full FDIC insurance. If you inherited from a large estate and need help with cash management services while you plan what to do next, reach out to Sunnybranch to see how I can help.
3. What to do if you inherit money in stocks, mutual funds, or ETFs?
Navigating inherited stocks introduces a layer of complexity to managing and planning for your inheritance.
The good news is that most inherited investments get a “step-up in basis” that increases your tax basis to the assets’s value as of the decedent’s date of death.
Most, but not all, inheritors will not have to deal with major consequences if they sell assets in taxable accounts shortly after inheriting.
Your first step after inheriting investments: get a detailed inventory of exactly what you inherited and its value on the decedent’s date of death.
A common mistake I see is inheritors rushing to sell inherited investments in an attempt to “start fresh.”
If the portfolio is diversified and matches your risk tolerance, there may be no need to make big changes right away.
And even if it isn’t, it’s better to wait until you have a full understanding of your full financial picture before making any major buy/sell decisions.
This understanding may require the help of an advisor. You should consider the following factors:
Your portfolio’s diversification across asset classes, sectors, and geographies
Your investment time horizon and risk tolerance
Tax implications of rebalancing your portfolio
How these investments fit with your other assets and goals
The ongoing costs (expense ratios, management fees, trading costs) of your investments
Once this analysis is complete, you can start bringing your portfolio in line with your target allocation.
Sometimes this means selling everything and starting over.
More often, it means making strategic tweaks over time to minimize taxes and maintain market exposure.
One common area inheritors get tripped up: emotional attachments to inherited investments.
Maybe your dad worked for Apple and kept all his stock, or your grandma swore by AT&T shares.
It’s important to honor this emotional attachment, while not letting it fully drive your investment decision.
You can work with your financial advisor for inheritors to explore your relationship to inherited holdings and build a plan that reduces your risk exposure while maintaining your connection to the stocks your loved one held.
“The most successful inheritors I work with are the ones who took their time in the beginning to build a strong foundation. Your future self will thank you for being thoughtful and deliberate right now, even if it feels frustratingly slow in the moment. ”
4. How to handle an inherited house or investment property?
Inherited real estate comes with its own special set of decisions and emotions.
Your first job: get a professional appraisal as of the date of death. Like stocks, most inherited real estate gets a "step-up in basis,” which requires value documentation.
Next, you've got three main options:
Move in
Rent it out
Sell it
If you're thinking about moving in, be honest with yourself about whether this house fits your life.
Just because it's paid for doesn't mean it's right for you.
Consider:
Location relative to your job/schools/life
Size and layout for your needs
Ongoing maintenance costs and upcoming major repairs
Property taxes and insurance
Whether it needs major updates
HOA fees and restrictions
Future resale potential
Impact on your lifestyle and relationships
For rental properties, do some serious math. Many inherited properties that were "great investments" for the previous owner have pretty poor returns when you factor in current market value.
You might be better off selling and investing the proceeds elsewhere. Get real numbers on:
Potential rental income
Property management costs
Maintenance reserves
Insurance and taxes
Whether you want to be a landlord
Local rental regulations and requirements
Potential liability issues
Financing options if you need to upgrade the property
Long-term appreciation potential in that market
If you decide to sell, take your time to do it right. Consider:
Getting a pre-sale inspection to identify issues
Making strategic updates that increase value
Professional staging and photography
Timing the sale for the best market conditions
Tax implications of the sale
Whether to offer seller financing
How to handle personal property in the house
Remember, the carrying costs of inherited property add up while you’re making these decisions. Your sale timeline should factor in these cost considerations.
5. What to do with an inheritance in an IRA or 401(k)?
Recent rules have significantly increased the complexity associated with inheriting an IRA or 401(k) account.
These rules are difficult to understand and mistakes can have significant costs.
For beneficiaries who inherited an IRA from someone who died in 2020 or later, most non-spouse beneficiaries have to empty the account within 10 years.
They may also be required to take Required Minimum Distributions (RMDs), depending on the age of the person who died.
Here’s the strategic part: you don't have to take equal distributions each year.
You can be tactical about when you take money out based on your tax situation, other income, and life needs.
For non-spouse, non-eligible beneficiaries, there are several key points of strategy to consider when building a distribution plan for an inherited IRA or 401(k):
Coordinating distributions with your other income sources
Considering Roth conversions of inherited traditional IRAs
Planning distributions around big income years or tax law changes
Factoring in state tax rates
Consider the impact on college financial aid if you have kids
Betting on future tax rate changes and sunset provisions
And remember those RMD’s I mentioned? Don’t forget those when you’re building your tax plan. Missing them can trigger a SIGNIFICANT penalty with the IRS.
6. What to do if you inherit money and owe taxes? (And how to know if you will)
The first tax inheritors need to be aware of is estate tax.
As of 2024, the Federal estate tax only applies to estates over $13.61 million. Federal estate tax is the responsibility of the estate, not beneficiaries, so it will be paid before you receive your inheritance.
State estate taxes, some of which have much lower thresholds, may also reduce your inheritance before it arrives to you.
Some states also have inheritance taxes. These taxes are paid by estate beneficiaries, not the estate itself. Taxes are due based on where the deceased person lived and owned property, it doesn’t matter where you live as an estate beneficiary.
Inheritors should keep in mind that estate tax may affect the timing of when you receive inheritance distributions. Often, estates that expect to pay Federal or State estate taxes hold back funds to cover their tax liability.
After inheriting, you should also be aware of how inherited stocks are taxed when sold, how inherited property is taxed, and what taxes you will pay from an inherited IRA.
If you’re looking for help deciding what to do after inheriting, reach out and schedule a call.
Sunnybranch is an inheritance wealth management firm, and we help clients like you answer these questions every day. I’d be honored to see how we can help you make a plan to use an inheritance to build a plan that works for YOUR future.
Let’s take the next step together
Understanding what to do with an inheritance is not easy. Inheritors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can download The 20 Inheritance Terms You Need to Know, or reach out to Katherine Fox, CFP® and CAP®, a fiduciary, fee-only financial planner to learn how Sunnybranch can help you build a plan to manage, grow, and protect your inherited investments.
