7 Strategies To Help Manage Your Inheritance

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.

1. Take Time Before Making Any Decisions

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:

• Let the initial shock of the influx of cash settle.
• Understand exactly what you received (cash, property, investments, etc.).
• Clarify your current financial picture (debt, savings, opportunities).
• Meet with a tax or financial advisor to map out tax implications.

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.

2. Assess Your Financial Situation

Before you decide what to do with your inheritance, take stock of where your finances stand today. Ask questions such as:

• What high-interest debts am I carrying (credit cards, personal loans)?
• How healthy is my emergency fund (typically three to six months of expenses)?
• What are my near-term goals, such as buying a home, paying for my kids' education or preparing for retirement?

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.

Preventing the "inheritance and forget" problem

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:

1. How does this windfall change my retirement timeline? A meaningful inheritance might allow you to stop working sooner, or, if you enjoy your work, shift to part time earlier. It could also change how much you need to save each month.
2. Should I adjust my asset allocation? If the inheritance significantly increases your net worth, you may not need to take as much risk to reach your goals. Alternatively, it could give you the confidence to invest for longer-term growth.
3. What new risks or opportunities do I have now? A larger net worth can come with estate planning concerns, tax considerations or family expectations you've never had to navigate before.

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.

3. Create a Plan for Your Inheritance

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:

• Pay off high-interest debts.
• Boost retirement savings.
• Fund a child or grandchild's education.
• Donate to charity in honor of the person whose estate you inherited.

When you choose goals in advance, you can avoid making impulsive decisions. Consider splitting the money among "inheritance buckets." For instance:

• Bucket 1: Spend. Set aside a modest portion for something meaningful but controlled (travel, home improvement, charity).
• Bucket 2: Save. Use the funds in this bucket for your emergency fund or short-term liquidity.
• Bucket 3: Invest. This bucket is for long-term goals such as retirement or wealth building. Segmenting the funds helps you balance enjoyment now with financial discipline later.

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.

4. Consult With Professionals

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:

• A financial advisor can help you integrate the inheritance into your broader plan. They'll consider your risk tolerance, asset allocation, cash flow and spending.
• A tax professional can help you understand the tax implications, including estate and inheritance taxes (depending on the jurisdiction), capital gains and income from inherited assets.
• An estate attorney can help with legal matters such as verifying the will/trust, coordinating with executors and updating your own estate plan now that your financial picture has changed.

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.

5. Consider Tax Implications

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:

• Federal estate tax: The estate (not the heir) may owe this if above the federal exemption thresholds.
• State inheritance tax: Some states impose tax on the beneficiary; many do not.
• Capital gains tax: If you inherit an asset (e.g., stocks or real estate) with unrealized appreciation, your cost basis may be stepped up—or not—depending on the state and asset type. Selling later could trigger gains.
• Income tax on future earnings: Inherited assets may produce income (dividends, rental income) subject to tax.

Strategies to minimize tax burdens:

• Use the waiting period to ensure the basis and valuation are captured correctly.
• Consider tax-advantaged accounts if some of the inheritance is eligible to be funneled into IRAs, 401(k)s or similar vehicles, depending on your situation.
• Consider trusts or charitable giving vehicles to leverage tax efficiencies (if goals include legacy or philanthropy).
• Keep detailed records. Document the value of inherited assets at the date of death, the nature of the asset, appraisals and any correspondence or valuations. Good records may protect you in an audit or when you sell property later.

6. Invest Wisely for the Future

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.

Time horizon

• If your goals fall in the short to medium term (roughly three to 10 years), you might lean toward lower-volatility options, such as high yield savings accounts, certificates of deposit (CDs), short-term bonds or conservative mutual funds. These choices can help preserve access to your funds if you anticipate needing them sooner rather than later.
• For goals that sit farther out (10+ years), you may prefer growth-oriented assets such as stocks or equity ETF if the inheritance is intended to support retirement, grandchildren or generational wealth.

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?

Diversification and risk

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.

7. Protect and Preserve Your Inheritance

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.

• Update your will/estate plan now that your net worth has changed so your heirs are covered and your own planning is aligned.
• Consider a trust (revocable or irrevocable) if you have large amounts of money, want to control the timing of distributions or wish to protect assets from creditors.
• Review beneficiary designations for life insurance, retirement and investment accounts, as these can override wills.
• Use a durable power of attorney and healthcare directives, especially if your financial picture is now more complex.

Insurance options or safeguards:

• If you inherit real estate or business interests, consider property liability and business insurance.
• Umbrella liability insurance may be relevant if your net worth has suddenly increased.
• Protect liquidity: Maintain enough cash or near-cash so you're not forced to sell long-term investments during a downturn.

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

Final Thoughts

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.