Written by Robb Engen
Published Jan 30 | 8 minute read
Inheriting money often comes at a complicated moment. Alongside the financial shift, there may be grief, unfinished conversations and the weight of someone's absence. It's not the kind of windfall anyone dreams about, but it's a responsibility that may be significant in the long run.
Amid all that emotion, one thing remains true: The choices you make from here can shape how this inheritance supports you over time. Thoughtful steps can help you honor the person who left it to you while exploring ways to build stability for yourself—and possibly for the next generation.
In short, the money has arrived, even if the moment feels anything but simple. Now it's time to consider a plan that fits your life moving forward. Let's walk through how to get started.
When you see a check or cash transfer land in your account, your first instinct might be "Wow! I'm going to use that money immediately."
Resist that urge. One of the best things you can do is take a pause. Inheriting a sum, whether large or modest, can trigger emotional reactions like "I deserve something now." But decisions made on impulse often lead to regret (think oversized car payments, risky investments or indulgent purchases).
Give yourself a window—three to six months might be reasonable—before allocating significant chunks of the inheritance. During that time, you can:
Depending on what you inherit, there may be tax implications. For example, property received as part of an inheritance may trigger capital gains when sold later.
Use this waiting period to gather documentation (value at date of inheritance, step-up in basis, investment cost basis) and let professionals help you avoid any financial surprises.
Before you decide what to do with your inheritance, take stock of where your finances stand today. Ask questions such as:
If you're carrying credit card balances, using part of the inheritance to eliminate or significantly reduce that debt may help improve overall financial stability. Equally, if you don't yet have a solid emergency fund, it might make sense to set aside a chunk of the inheritance for that safety net rather than jumping into high-risk investments.
Even if your situation feels simple on the surface, the reality is an inheritance can ripple through your financial life in ways that aren't obvious at first glance. A qualified advisor can help you map out how the inheritance fits into the big picture: retirement, investing, taxes and any new risks that may come with a larger net worth.
Here's a common scenario: Someone receives an inheritance, deposits it into an investment account and carries on with their original plan. Same retirement date, same monthly savings amount, same investment mix. Emotionally it feels too soon to rethink everything, so nothing changes. Years later, that person realizes they could have retired earlier, taken less investment risk or structured their withdrawals more tax efficiently. The window to capture those benefits has passed because the money wasn't integrated into a long-term plan. That's the “inheritance and forget" problem: treating the money as a nice-to-have instead of something that may change what's possible.
A few questions can open up that conversation:
Thinking through these questions early can help you avoid the trap of simply parking the money somewhere and hoping for the best. Inheritance is not just a lump sum; it's a chance to reshape your financial future with intention.
Now that you've paused and assessed, it's time to create a structure for your inheritance so the money serves your goals. Take some time to define what you want the inheritance to do. Some ideas might include:
When you choose goals in advance, you can avoid making impulsive decisions. Consider splitting the money among "inheritance buckets." For instance:
As mentioned above, you don't have to treat the entire amount as a single lump sum to spend or invest. Dividing it avoids all-or-nothing thinking and helps keep you grounded. For example, allocating 20% to enjoy now, 30% to save/secure and 50% to grow over time is just one approach. The exact split depends on your situation, but the principle is useful: Plan ahead; don't improvise.
A windfall isn't simply a financial event—it's a multifaceted experience involving taxes, legalities, investments and potential emotional complexities. You don't want to fly blind, so consider adding some professionals to your team:
Don't pick just anyone. Look for advisors who have handled lump-sum inheritances, nonstandard assets (such as family business interests, real estate and collectibles) and estate/legacy planning. Their prior exposure may save you time, money and mistakes.
Even though it might feel like free money, inheritances come with tax and regulatory considerations. Ignoring them can cost you dearly. Here are a few taxes to keep in mind:
Strategies to minimize tax burdens:
If part of the inheritance is earmarked for investing, consider anchoring your decisions around three fundamentals: time horizon, risk tolerance and diversification. These guideposts can help keep your strategy grounded, especially when emotions and unknowns are in the mix.
Across either approach, broad market index funds or passive ETFs can offer diversified exposure with typically lower fees. And if the inheritance gives you room to strengthen your financial foundation, contributing to retirement accounts (like IRAs or 401(k)s) may be worth considering.
READ MORE: How Can CDs Help You Reach Your Goals?
Resist the urge to place the entire inheritance into a single stock, crypto play or speculative trend just because the timing feels serendipitous. Diversifying across different types of investments can help reduce risk and support an evidence-based approach.
For example, some investors choose to spread money across a core equity portfolio, fixed income and a small allocation to alternative assets (for those comfortable with additional volatility). Real estate can also be part of the mix, but treat it as an investment rather than a hobby and make sure you understand the tax implications, maintenance demands and limited liquidity that come with it.
Receiving money is one thing; making sure it stays and serves its purpose is another. This section covers the protective structures and ongoing review you may need.
Insurance options or safeguards:
Your inheritance isn't a set-it-and-forget-it event. Life changes (marriage, divorce, kids, job changes, etc.), market shifts and tax law changes all mean your plan needs periodic review—at least annually. Revisit your asset allocation, goals and estate plan to help ensure the original purpose of your inheritance remains intact, and adjust as necessary.
READ MORE: 5 Types of Insurance to Help Protect Your Wealth
An inheritance can feel like a gift from the universe, but it only becomes a lasting benefit if you treat it with the respect it deserves. Pause, assess, plan, consult professionals, invest wisely and protect what you've been given. You've been entrusted with something meaningful. Now it's your move.
Robb Engen is a leading personal finance expert in Canada and the founder of Boomer & Echo, an award-winning personal finance blog. He is a fee-only financial advisor who helps clients at different ages and stages get their finances on track and prepare for retirement. He's also regularly quoted or featured in top financial media, such as The Globe and Mail, MoneySense, Financial Post, CBC and Global News. Robb lives in Lethbridge, Alberta, and is the married father of two young girls who keep him very busy.