A Practical Guide to Receiving an Inheritance — What to Do When You Inherit Wealth from Your Family

Financial Planning

Introduction

Over the next 20 years, millions of Americans will inherit wealth from their parents or grandparents. While headlines often focus on billion-dollar estates, the vast majority of these inheritances will come from modest estates valued under $1 million. These are homes, retirement accounts, savings, and personal property accumulated over decades of hard work — and now they’re being passed down to the next generation.

Even though these inheritances might not come with estate tax complications or trust fund drama, receiving an inheritance still comes with responsibilities, choices, and potential pitfalls. Whether you’re inheriting a house, some savings, or your parents’ retirement accounts, how you handle it can shape your financial future — for better or worse.

Start with Gratitude — Then Pause

Receiving an inheritance, especially after losing a loved one, is emotional. It can feel overwhelming to deal with financial decisions while you’re still grieving. That’s why the smartest first move is to pause. Don’t rush to spend, invest, or make any big decisions. Take time to gather all the facts and fully understand what you’re inheriting.
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It’s natural to feel grateful for what’s left behind, but it’s equally important to recognize that an inheritance is a tool, not a lottery win. Used wisely, it can strengthen your financial security, fund future goals, or provide a safety net. Used carelessly, it can disappear faster than you think.
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First steps after receiving an inheritance:

  • Collect all documents related to the estate.
  • Identify what assets are included — cash, real estate, retirement accounts, or
    personal property.
  • Request copies of the will, trust, or any estate documents.
  • Meet with the executor (if applicable) to understand the timeline and process.

Understand How Different Assets Transfer

Not all inheritances are created equal. Some assets, like bank accounts with named beneficiaries, pass directly to heirs with minimal paperwork. Others, like real estate or personal property, may need to go through probate, a court process that formally transfers ownership. Understanding what you’ve inherited and how it transfers is crucial to making smart decisions.

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For smaller estates, you’re likely to encounter:

  • Bank accounts with payable-on-death (POD) designations, which transfer
    directly to you once you show a death certificate.
  • Retirement accounts like IRAs or 401(k)s, which may require you to take
    money out over a certain period.
  • The family home, which may need to be sold, kept, or divided among heirs.
  • Personal property, including vehicles, jewelry, or collectibles, which may hold
    more sentimental value than financial value.

Inheritances can come with surprises, especially if your loved one didn’t leave clear instructions. In cases where no beneficiaries are listed, assets may pass according to state laws, which may not align with what your family expected.

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Don’t Forget About Taxes

For most modest inheritances, federal estate taxes won’t apply. The estate tax exemption in 2024 is over $13 million, far above the wealth most families pass down. But there are still taxes you may face, depending on what you inherit. The most common tax issue comes with inherited retirement accounts. If you inherit a traditional IRA or 401(k) from a parent, you typically need to withdraw all the money within 10 years, which can create a tax bill. These withdrawals are taxed as regular income, so if you withdraw too much at once, you could bump yourself into a higher tax bracket.

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In contrast, inherited Roth IRAs offer tax-free withdrawals, making them far more valuable. But even Roth IRAs must be emptied within 10 years for non-spouse heirs. If you inherit real estate, you benefit from a helpful tax rule called the step-up in basis. This means the property’s value is adjusted to its market value at the time of death, which reduces or even eliminates capital gains tax if you sell the property shortly after inheriting it.

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Potential taxes to watch for:

  • Income tax on withdrawals from inherited traditional IRAs or 401(k)s
  • Capital gains tax if you sell inherited property that’s appreciated in value
  • Income tax on annuities if the gains weren’t previously taxed

What to Do If You Inherit a Home

For many people, the family home is the largest asset they inherit. But deciding what to do with it can be complicated, especially if there are multiple heirs or sentimental attachments involved.
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Your options include:

  • Selling the home and splitting the proceeds with other heirs.
  • Keeping the home and using it as your primary residence, a rental property, or a
    vacation home.
  • Transferring ownership to one heir, who may need to buy out the others.
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Each option comes with financial and emotional considerations. If you’re sharing the inheritance with siblings, clear communication is key to avoiding conflict. It’s helpful to get the home appraised so everyone has a clear understanding of its value.

How to Use Your Inheritance Wisely

An inheritance can feel like found money — but treating it that way is the fastest way to burn through it. Instead, think about how this money fits into your broader financial picture. What do you want it to do for you? It could pay off debt, fund a home purchase, or boost your retirement savings. The point is to decide before you spend it.
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Smart ways to use an inheritance:

  • Pay off high-interest debt, starting with credit cards.
  • Establish or boost your emergency fund.
  • Contribute to retirement accounts like IRAs or 401(k)s.
  • Fund your children’s or grandchildren’s education.
  • Invest in a diversified portfolio for long-term growth.
  • Purchase life insurance or long-term care coverage to protect your own future.
  • Set aside a portion for travel, experiences, or meaningful personal goals.

It’s also wise to keep part of your inheritance in a separate savings account while you decide what to do next. This helps you avoid impulsive spending and gives you time to explore your options.

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Work with a Trusted Advisor

Even if you consider yourself financially savvy, inheriting money is different from earning it. The rules, tax treatment, and emotional weight are different. That’s why working with a financial advisor who understands inheritance planning can be invaluable.
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A professional can help you:

  • Understand the tax implications of your inheritance.
  • Invest inherited funds in a way that aligns with your goals.
  • Decide how to handle inherited retirement accounts.
  • Navigate co-ownership issues if you inherit property with siblings.
  • Update your own estate plan to reflect your new wealth.
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Advisors can also act as neutral third parties if disagreements arise between heirs. Having a professional guide can reduce stress and keep everyone focused on practical solutions.

Inheriting Personal Property and Sentimental Items

Not every inheritance comes in the form of cash or real estate. Many parents leave behind heirlooms, jewelry, furniture, and other personal items that carry far more emotional value than financial worth. These items often create more family disputes than money itself, especially if no clear instructions were left behind.

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If you’re inheriting personal property:

  • Try to honor your loved one’s wishes, even if they were informal.
  • Work with siblings or other heirs to divide items fairly.
  • Consider using a family lottery or rotation system if no specific plan exists.
  • Remember that sentimental value isn’t always tied to monetary value.

Final Thought — Handle It With Care

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An inheritance — no matter how large or small — is a reflection of your loved one’s life and hard work. Handling it thoughtfully ensures their legacy lives on, not just in your bank account but in the financial security and opportunities it creates for you and your family.

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Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company manages several fee-based portfolios comprised of various equity and fixed-income investments that may include mutual funds and exchange traded funds. This is not a prospectus or an offer to sell any security. Please read the prospectus of any investment before you invest. Information included here is intended for education and information purposes only.