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"I Just Inherited Money, What Should I Do?” A Roadmap for Sudden Wealth
- Todd Pouliot
- 2 days ago
- 5 min read
Receiving an inheritance is bittersweet. Here is how to navigate the administrative burdens, tax implications, and emotional weight of newfound wealth without making costly mistakes.
Receiving an inheritance is one of the most complex financial events in a person’s life. It is almost always bittersweet when a financial windfall comes at the cost of losing someone you care about.
I have been asked, "I Just Inherited Money, What Should I Do?” a hundred times, and I have had to deal with this question more than once within my own family. I know that an inheritance is rarely just a financial transaction; it is an emotional event wrapped in complex administrative hurdles.
I frequently sit across the table from clients who have just received significant assets. Almost universally, their initial reaction isn't joy; it's overwhelm, anxiety, and sometimes guilt. They are grieving, yet they are suddenly forced to make high-stakes decisions about tax laws, probate courts, and unfamiliar investment accounts.
In the industry, we sometimes call the anxiety surrounding a large windfall "Sudden Wealth Syndrome." The urge to do something immediately can be intense.
If you are reading this because you have recently inherited assets, my first piece of advice is simple: Take a deep breath. You have more time than you think.
Here is the professional roadmap I use with my clients to move from overwhelm to clarity.
Phase 1: The Immediate "No-Fly Zone"
The biggest mistakes happen in the first six months. Grief clouds judgment, making you vulnerable to impulsive decisions or worse, predatory advice from long-lost "friends" with great business ideas.
Before you do anything else, establish a "No-Fly Zone."
For the next 3 to 6 months, commit to making no major financial changes.
Do not quit your job.
Do not buy a new car or look at new houses.
Do not make large gifts to family members yet.
If you receive cash proceeds (like life insurance), park the funds in a secure, FDIC-insured High-Yield Savings Account (HYSA) or a short-term Treasury money market fund. Your only goal right now is safety and liquidity while you process your loss.
Phase 2: The Survivor's Checklist (Triage)
Once the immediate shock has subsided, you must deal with the administrative realities. You don't have to do this alone. This is typically where the Executor of the estate, an estate attorney, and your financial planner coordinate.
While every estate is different, here are the essential triage items we review on our "Survivor's Checklist":
1. Locate Essential Documents
We need to find the Will, any Trusts, recent tax returns of the deceased, and—crucially—multiple certified copies of the death certificate. You will need an original death certificate for almost every financial institution you deal with.
2. Identify the "Team."
Who is in charge? If you are the Executor/Personal Representative, the burden is on you. If not, establish communication with whoever is in charge. You also need to identify the estate attorney and the CPA who will handle the deceased’s final tax return.
3. Immediate Cash Flow Management
Just because someone passed away doesn't mean their bills stopped. Ensure utilities, mortgages, and insurance on the deceased’s property are still being paid. We need to identify which accounts have liquidity to cover these immediate costs while other assets are tied up in probate.
Phase 3: The Assessment (Taxes and Structure)
Once we move past the triage phase, we need to look at what you actually inherited. Not all assets are created equal, especially in the eyes of the IRS.
This is where professional guidance is non-negotiable.
The Magic of "Stepped-Up Basis"
If you inherit non-retirement assets like a brokerage account full of stocks or the family home, you generally receive a "step-up in basis." This means the asset's value for tax purposes is reset to its value on the date of death. This can erase decades of potential capital gains taxes. It is vital that we get formal appraisals immediately to lock in this value.
Cautionary tale: A client of ours inherited a significant amount of stock with substantial capital gains. The custodian failed to offer the correct stepped-up basis, which could have resulted in an additional $2.2 million in taxable gains. Our client successfully avoided a potential tax liability of nearly $1 million!
Tax Type | Rate | Estimated Cost |
Federal Income Tax | Top bracket 37% | ~$840,000* |
Federal NIIT | 3.8% Surtax | $83,600 |
Ohio State Income Tax | 2.75% Flat | $59,783 |
TOTAL ESTIMATED TAX | ~44.7% | ~$983,383 |
The Challenge of Inherited IRAs
If you inherit a traditional IRA or 401(k) from someone other than your spouse, the rules have changed drastically. Under current law (the SECURE Act), most beneficiaries must drain the entire account within 10 years and pay income taxes on every dollar withdrawn. We need to create a strategic, multi-year withdrawal plan to keep those taxes from pushing you into a painful tax bracket. Timing retirement, gifting strategies, or other life events is vital to a successful tax plan.
Cautionary tales: There are several stories, but I can sum them up as: The "Lump Sum" Tax Bomb, The Financial Aid "Vaporizer", The Medicare "Cliff", and, finally, the dreaded Tax "Torpedo". If the names don't scare you, the tax bill and loss of inherited wealth should.
Debt vs. Assets
Did you inherit debt along with assets? Generally, you are not personally responsible for the deceased's debts; they are paid from the estate. Never use your own protected funds (like life insurance proceeds) to pay off estate debts without speaking to an attorney first.
Phase 4: Integration and Your New Future
Only after the dust has settled, taxes are understood, and assets are retitled do we look at the long term.
An inheritance shouldn't just be tacked onto your existing financial plan; it usually requires building a new plan.
Does this windfall allow you to retire five years earlier?
Can you now fully fund your children’s college education?
Does this push your own estate over the federal exemption limits, meaning you now have an estate tax problem you didn’t have before?
We also highly recommend allocating a small "honor fund," perhaps 5% of the inheritance, to spend guilt-free on something that honors the memory of your loved one, whether that's a dream trip or supporting a charity they loved. Realizing this is a gift that comes with strong emotions is a struggle we all deal with in different ways.
Don't Go It Alone
Inheriting money is a life-altering event that requires balancing technical financial expertise with emotional intelligence. It is too much to handle while you are grieving.
You don't have to become a tax expert or an investment guru overnight. You just need to make one good decision: hiring a team to guide you.
Are you overwhelmed by the complexity of a recent inheritance?
We can help lift the burden. At Gateway Financial, we act as your fiduciary partner, coordinating with your attorney and accountant to ensure the estate is settled correctly and your newfound assets are integrated into a long-term plan that serves your goals. In fact, I built a team around you already so you don't have to worry about finding a team and making sure all three parts are in alignment.
Let us handle the spreadsheets so you can focus on healing.
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