A Guide To Managing An Inheritance

Receiving an inheritance can feel like a gift and a weight. Even a welcome financial windfall arrives at a hard moment, with heirs often grieving, sorting through legal and tax decisions, and facing choices that could impact their family's financial future. 

The stakes are high, and more families face them than ever before. The largest intergenerational wealth shift in U.S. history is underway, with Cerulli Associates projecting $124 trillion in wealth will transfer through 2048, and roughly $105 trillion flowing to heirs. The choices made in the first months after inheriting can have lasting consequences for taxes, investment growth, and a family's long-term security. 

Managing an inheritance well takes a clear plan, expert advisors, and patience to make decisions in the right order. Here's how we help clients think through inheritance financial planning, step by step. 

What Are The First Decisions To Make After Receiving An Inheritance? 

The first weeks and even months after receiving an inheritance are rarely the right time to make major financial decisions. Make sure these immediate considerations are on your list before any investing, spending, or gifting. 

1. Confirm the form of the inheritance. Outright bequests, assets held in trust, and beneficiary designations on retirement accounts or life insurance all carry different rules. Each affects how and when heirs can access inherited money. 
2. Decide whether to accept the bequest. Heirs who don't want or need an inheritance can disclaim it. Disclaiming is a formal legal process with specific deadlines and tax consequences, so it requires guidance from an estate attorney and tax advisor before any decisions are final. 
3. Park inherited money. Whether money is inherited in cash or investments, it is beneficial to take your time before making changes. Depositing inherited cash in an interest-bearing account, money market account, or short-term CD and not selling investments right away allows heirs time to think. Waiting three to six months before making large purchases, gifts, or investment changes is a common rule of thumb. 

The emotions around grief affect judgment, especially immediately after the death of a loved one. To avoid making emotionally driven transactions, heirs should pause any major decisions about real estate, jobs, relocation, or charitable gifts until they gain clarity and trusted advice from experts. 

How To Assess Your Financial Situation After Inheriting Money 

A coordinated financial plan that folds inherited assets into the heir's full picture delivers measurable benefits. Aligning the inheritance with existing assets, debts, income, and goals lowers tax exposure, reduces concentration risk, and identifies opportunities like accelerated retirement funding, debt elimination, or charitable giving that may have been out of reach before. A coordinated plan also creates a clear framework for future decisions, so heirs don't have to revisit every question from scratch when life circumstances change.  

Before deciding what to do with inherited money, it's important to get a clear financial picture. A complete inventory of current assets, debts, income, and obligations is the basis for every decision. Without it, even well-intentioned choices can work against long-term goals. A wealth advisor can help complete a cash flow analysis and net worth statement that combine current and inherited assets into one clear picture. 

You'll need to understand the type of assets before you can move forward with the financial plan. Here is a list of potential asset types, but it could include any number of things, including: 

• Cash and savings accounts 
• Brokerage accounts holding stocks, bonds, or mutual funds 
• Retirement accounts (IRAs, 401(k)s, or other employer plans) 
• Real estate, including primary homes, vacation properties, or rental units 
• Business interests or closely held company shares 
• Life insurance proceeds 
• Personal property like art, jewelry, or collectibles 

Each asset type carries its own tax treatment, liquidity profile, and decision timeline. A diversified inheritance often needs different financial strategies for each asset. 

What Happens When You Inherit Money Through A Trust? 

When an inheritance comes through a trust, the trust document controls how and when inherited assets are distributed. A trustee — often a family member, attorney, advisor, bank or trust company — manages the trust according to the terms set by the person who created it. Three steps help trust beneficiaries protect their interests: 

Read the trust document carefully. Beneficiaries have a legal right to the trust document. An estate attorney or trust advisor can review the terms and explain what's allowed, what's prohibited, and what types of changes can be made to the terms. Many trusts restrict borrowing against the trust, prevent creditors from reaching trust assets, or limit how distributions can be made. 

Calculate new income. Trust income varies widely depending on what's inside and what is allowed to be paid to a beneficiary.  Trustees must  provide  statements on a regular basis that will show anticipated growth and income of the assets, and a conversation with a trustee about the terms will help beneficiaries plan. 

Review trustee fees. Trustee compensation varies by state, asset complexity, and the trustee's role. Fees are generally a percentage of assets, so as the trust grows, the trustee will receive a larger dollar amount, and as the trust declines in value, the trustee will be paid a lower dollar amount.  

Trustees can be difficult to replace, depending on the terms of the document, so a constructive working relationship serves beneficiaries far better than an adversarial one. 

How Should You Handle Inherited Stocks, Real Estate, And Retirement Accounts? 

Different inherited assets carry different tax treatments, holding requirements, and decision timelines. Treating them all the same is one of the most common mistakes heirs make. A coordinated strategy across asset types preserves more of the inheritance and reduces tax exposure. 

What Is The Step-Up In Cost Basis And Why Does It Matter? 

Step-up in cost basis is one of the most valuable tax provisions for inheritors. When someone inherits an asset like stock, real estate, or a business interest, the cost basis generally resets to the asset's fair market value on the date of the original owner's death. Any appreciation that happened during the original owner's lifetime disappears for capital gains tax purposes. Keep in mind, however, that states can have different rules around when the step up does and does not apply, so be sure to consult with your tax advisor to ensure this is applied correctly in your situation. 

An example: if a parent bought stock decades ago for $20,000 and it's worth $200,000 at the time of death, the heir's cost basis becomes $200,000. Without the step-up, an heir who sold the stock for $200,000 would owe capital gains tax on $180,000 of appreciation. With the step-up, the heir's cost basis resets to $200,000, and selling the stock at that price triggers little to no capital gains tax. The same principle applies to inherited real estate and other appreciated assets. 

This provision can save tens of thousands of dollars or more, and it influences whether to sell, hold, or restructure inherited assets. A wealth advisor and accountant should coordinate to document the date-of-death value and your state’s cost basis step up rules and plan around it. 

What Should You Do With Inherited Stocks? 

Inherited stocks come with three decisions: hold, sell, or rebalance. The right answer depends on several factors, including the heir's portfolio, risk tolerance, tax situation, and whether the inherited shares represent a controlling interest in a closely held company.  

A few questions can help guide the decision. Does the inherited stock overlap with existing holdings, creating concentration risk? Does it fit the heir's overall investment strategy and risk profile? Would selling now, while the cost basis is stepped up, lock in tax efficiency? 

Selling and reinvesting in a diversified portfolio is often the right move when inherited shares don't fit the heir's strategy. With the stepped-up basis in place, the tax cost of selling can be minimal. 

How Should You Deal With Inherited Real Estate? 

The decision to keep, sell, rent, or move into an inherited property carries tax implications, ongoing costs, and sometimes complex family dynamics. Consider the property's condition and carrying costs, local market conditions, whether other beneficiaries share ownership, and whether the property fits the heir's lifestyle. 

Depending on how the real estate is titled, the stepped-up basis may apply, which often makes selling soon after inheriting a tax-efficient option. Holding the property and renting it produces income but also creates landlord responsibilities and shifts the tax picture toward ordinary income. 

What Are The Rules For Inherited Retirement Accounts? 

Inherited IRAs and 401(k)s carry the most complex rules of any inherited asset. The SECURE Act changed the laws so most non-spouse beneficiaries must now empty an inherited retirement account within 10 years of the original owner's death. Other facts to consider: 

• Spouses generally have the most flexibility, including the option to treat an inherited IRA as their own and follow standard required minimum distribution rules. 
• Most non-spouse beneficiaries (adult children, for example) face the 10-year rule, which can create significant tax exposure if withdrawals aren't planned carefully. 
• Eligible designated beneficiaries — including minor children of the original owner, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the deceased — may still potentially take distributions over their life expectancy. 

Inherited traditional IRA distributions are taxed as ordinary income, so timing withdrawals strategically across the 10-year window prevents pushing the heir into a higher tax bracket. A wealth advisor and tax professional can coordinate the right plan. 

What Are The Tax Implications Of An Inheritance? 

Federal estate tax is paid by the estate before assets pass to heirs. The lifetime estate and gift tax exemption is $15 million per individual and $30 million for married couples in 2026, which shields most estates from federal estate tax entirely. Estates above those thresholds face rates up to 40%.  

Federal income tax generally doesn't apply to inherited assets; receiving an inheritance isn't a taxable event in most cases. But the income generated by inherited assets going forward, like dividends, interest, rental income, retirement account distributions, is taxable, which can push heirs into higher brackets and change their overall tax picture significantly. 

State taxes are a separate matter. A small number of states impose an inheritance tax paid by the beneficiary, and a larger group imposes a separate estate tax with thresholds far lower than the federal level. Heirs receiving assets from out-of-state estates should confirm both states' rules with a tax professional. 

Several strategies, used in coordination, can preserve more of the inheritance: 

• Annual gifting. The 2026 annual gift tax exclusion is $19,000 per recipient, or $38,000 for married couples electing to split gifts. 
• Charitable giving. Direct gifts, donor-advised funds, charitable remainder trusts, and qualified charitable distributions from inherited IRAs all reduce taxable income or estate value. 
• Trust planning. Irrevocable life insurance trusts can remove insurance proceeds from the heir's taxable estate; marital trusts preserve both spouses' estate tax exemptions. 
• Coordinated income timing. Spreading inherited IRA withdrawals across the 10-year window, harvesting losses, and timing Roth conversions strategically can lower the lifetime tax bill significantly. 
• 529 plan contributions. Funding a 529 education savings plan for children or grandchildren reduces the size of the heir's taxable estate while covering qualified education expenses tax-free. The IRS also allows superfunding, which lets contributors front-load up to five years of annual gift tax exclusions in a single year per beneficiary. 

Tax law changes regularly. Working with a wealth advisor, estate attorney, and tax professional as a coordinated team is the most reliable way to capture available benefits. 

How Should You Invest An Inheritance? 

An inheritance can change the math of an investment plan. Inherited assets may shift the allocation, the risk profile, and often the long-term goals themselves. The most effective approach folds it into a comprehensive financial plan that accounts for all of an heir's assets, liabilities, and goals.  

A useful starting point is a fresh look at five questions: 

1. Does current income cover current needs, or does the inheritance need to generate income? 
2. When will the money be needed? 
3. Does the inherited money change the current investment risk level (meaning, if your portfolio was half equities and half fixed income before you received inherited assets, has that changed with this addition)? 
4. Does the combined portfolio (existing assets plus inherited assets) carry concentration in any single stock, sector, or asset class? 
5. Is the portfolio positioned to outpace inflation over time? 

Inherited investments often are structured for the original owner's life stage and goals, not the heir's. A 75-year-old's portfolio is typically built for income and capital preservation. A 45-year-old heir likely needs growth. Restructuring is often necessary, and the stepped-up basis usually makes that restructuring tax-efficient. 

How Does An Inheritance Affect Your Estate Plan? 

An inheritance is one of our top ten reasons to review your estate plan. Wills, trusts, beneficiary designations, and powers of attorney all deserve a fresh look. 

Key updates often include: 

• Will revisions to account for new assets, updated wishes, or changing family circumstances. For significant updates, drafting a new will is often cleaner than amending an old one. 
• Beneficiary designations on retirement accounts and life insurance policies, which pass outside the will and need to be reviewed directly. 
• Trust planning for tax efficiency, asset protection, or providing for minor children, including marital trusts, irrevocable life insurance trusts, and charitable trusts. 
• Guardianship designations if minor children are involved. 
• Powers of attorney and healthcare directives to confirm the right people are authorized to act if the heir becomes incapacitated. 

Estate planning sounds intimidating, but coordinated work between a wealth advisor, estate attorney, and tax professional makes it manageable. The goal is straightforward: make sure assets pass according to the heir's wishes with as little erosion to taxes and friction as possible. 

When Should You Work With A Wealth Advisor On Inheritance Financial Planning? 

Managing an inheritance involves decisions across tax, investment, insurance, estate, and legal territory — often all at once, often during a period of grief. The most effective approach to inheritance financial planning isn't a series of one-off decisions but a coordinated strategy built around the heir's complete financial picture. 

A wealth advisor's role is to be the connector across these areas. The right advisor: 

• Builds a comprehensive financial plan that integrates the inheritance with existing assets, income, and goals 
• Coordinates directly with the heir's estate attorney, accountant, and other advisors 
• Plans tax-efficient strategies for distributions, gifting, and charitable giving 

At First Business Bank, our Private Wealth team works as a coordinated group of experts on every client relationship, aligning business and personal wealth strategies under one plan. For heirs whose inheritance includes business interests, complex assets, or significant estate planning needs, that integrated approach makes the difference between a windfall that compounds and one that quietly erodes. 

An inheritance is a meaningful moment in a family's financial life. The choices made in the first year shape the next several decades. With a clear plan and the right team, an inheritance can do exactly what the previous generation intended: provide opportunity, stability, and a foundation for what comes next. 

Updated: 8/21/2026