A Practical Guide to Handling an Inheritance
Few financial events are as personal or as disorienting as receiving an inheritance. What looks straightforward on paper is rarely simple in practice, and the right path forward depends as much on timing and temperament as it does on tax law.
Key Takeaways
- Pause before making financial decisions; let emotions settle first
- Understand the tax implications of different inherited asset types (stepped-up basis, inherited IRAs, estate taxes)
- Assemble a coordinated team of professionals (financial advisor, CPA, estate attorney)
- Integrate inherited wealth into your existing financial plan rather than treating it in isolation
- Consider how inheritance decisions affect your spouse, children, and long-term legacy
Patience Is the First Step After Receiving an Inheritance
Grief clouds judgment. The pressure to act quickly with newly inherited money can lead to decisions you may later regret, so the most effective first step is simply to pause.
Financial professionals call this the “pause and park” approach: place inherited funds in a secure, liquid account, such as a high-yield savings account or short-term Treasury bills, while you develop a thoughtful plan. Set a personal timeline of at least 90 days before making any major decisions. Very few inheritance-related choices require immediate action, and the ones that do (certain tax elections or beneficiary deadlines) are precisely why assembling the right professional team early matters so much.
The Tax Implications of Inherited Wealth
Tax planning is one of the most time-sensitive aspects of managing an inheritance, and mistakes made early can be costly and sometimes irreversible. The tax treatment of inherited assets varies significantly depending on the type of asset, your relationship to the deceased, and both federal and state laws.
At the federal level, the estate tax exemption stands at $15 million per individual (indexed for inflation and subject to change), meaning many estates will not owe federal estate tax. Separately, the IRS clarifies that inherited assets are generally not considered taxable income to the beneficiary, though the income those assets generate going forward may be.
One of the most valuable tax provisions for heirs is the stepped-up cost basis. When you inherit investments held in a taxable brokerage account or real estate, the cost basis typically resets to the fair market value at the date of the decedent’s death, as outlined in IRS Publication 551. This means that years or even decades of unrealized capital gains that built up during the decedent’s lifetime can pass to heirs without triggering tax, a significant planning consideration when deciding whether to hold or sell inherited assets.
Inherited retirement accounts follow a different and more complex set of rules. The SECURE Act established a 10-year rule requiring most non-spouse beneficiaries to fully distribute an inherited IRA or 401(k) within ten years of the original owner’s death. During that window, Required Minimum Distributions (RMDs) may apply in certain years, depending on whether the original account holder had already begun taking distributions. The specifics are detailed in IRS Publication 590-B. Getting the distribution strategy wrong can result in substantial and unnecessary tax burdens.
The rules differ meaningfully depending on whether the beneficiary is a spouse or non-spouse, as summarized below:
| Rule | Surviving Spouse | Non-Spouse Beneficiary |
|---|---|---|
| Rollover to own IRA | Yes, can treat as own | No; must maintain as inherited IRA |
| Distribution timeline | If treated as own IRA, distributions are based on spouse’s age and can be taken over lifetime (the 10-year rule does not apply) | Must empty account within 10 years (SECURE Act); exceptions apply for eligible designated beneficiaries |
| RMDs | Based on own age using Uniform Lifetime Table or Single Life Table | May be required annually in years 1-9 if decedent was past required beginning date |
| Roth inherited IRA | Can roll into own Roth IRA; Roth IRAs do not require RMDs over the lifetime of the owner or of the spouse once they inherit | 10-year rule applies; no annual RMDs but must fully distribute by year 10 |
| Penalty-free withdrawals | Standard early withdrawal rules apply after rollover | No 10% early withdrawal penalty regardless of age |
Finally, only a handful of states impose their own inheritance taxes, separate from the federal estate tax. As of 2026, those states are:
- Kentucky
- Maryland (the only state with both an estate tax and an inheritance tax)
- Nebraska
- New Jersey
- Pennsylvania
Rates and exemptions vary by state and by the beneficiary’s relationship to the deceased. Surviving spouses are typically exempt, while more distant relatives or unrelated beneficiaries may face the highest rates. This is precisely the kind of detail a coordinated advisory team is built to handle. A CPA familiar with the relevant state rules, working alongside your estate attorney and financial advisor, can identify strategies to reduce the combined federal and state tax burden before decisions become irreversible.
Your Inheritance Action Checklist
Use this checklist as a step-by-step guide after receiving an inheritance. Consider printing it or saving it as a reference.
- Pause and breathe. Allow yourself time to grieve before making financial decisions.
- Park the funds. Place inherited cash in a secure, liquid account (high-yield savings or short-term Treasuries).
- Set a decision timeline. Confirm there are no near-term deadlines (such as disclaimer elections or year-of-death RMDs), then commit to at least 90 days before any major financial moves.
- Take a complete inventory. Document every inherited asset: cash, securities, real estate, retirement accounts, business interests, personal property.
- Gather all documents. Collect account statements, property deeds, trust documents, insurance policies, and executor correspondence.
- Understand the tax implications. Identify which assets receive a stepped-up basis, which are subject to the 10-year rule, and whether state inheritance taxes apply.
- Assemble your professional team. Engage a fiduciary financial advisor, CPA, and estate planning attorney who will coordinate together.
- Review your existing financial plan. Reassess debt, emergency reserves, retirement contributions, and investment allocation in light of the inheritance.
Taking Inventory of What You’ve Inherited
Inherited wealth rarely comes in a single form. It can include cash, publicly traded securities, real estate, retirement accounts, business interests, life insurance proceeds, and personal property such as vehicles, jewelry, or collectibles, and each piece carries its own considerations. Real estate may come with maintenance costs, property taxes, or tenants. Business interests may involve operational responsibilities or partnership agreements. Some assets may be held in trust structures with specific conditions governing how and when they can be accessed.
Gather everything you can: account statements, property deeds, trust documents, insurance policies, and correspondence from the estate’s executor or attorney. A complete inventory also surfaces any liabilities attached to the estate (outstanding debts, mortgages, or pending legal matters) that could affect the net value of what you’ve received.
Most importantly, the inventory is what makes prioritization possible. With a complete picture in hand, you and your advisors can separate the decisions that need to happen quickly (a year-of-death RMD, a disclaimer deadline, a property with carrying costs) from the ones that can wait until you’ve had time to think. Without that picture, every decision feels equally urgent and equally overwhelming.
Building a Coordinated Professional Team
Inherited money financial planning requires expertise that spans multiple disciplines. A fiduciary advisor, a CPA experienced in inheritance tax planning, and an estate planning attorney each bring critical but distinct perspectives.
The danger of working with each professional in isolation is that siloed advice can lead to conflicting strategies. Your CPA may optimize for tax reduction while your investment advisor pursues a strategy that inadvertently creates a larger tax event, or your estate plan may not account for the new assets at all.
This is where one advisor proactively coordinating with these other professionals becomes invaluable. This type of advisor does not replace your CPA or attorney; instead, they help align all the moving pieces so that tax planning, investment management, and estate considerations work together rather than at cross-purposes.
When assembling your team, ask each professional how they collaborate with other advisors, whether they have experience with inherited wealth, and how they will communicate throughout the process. If you would prefer to start with a single point of contact who can help coordinate the rest, that is the role that New England Private Wealth Advisors, LLC (NEPWA) is built to play. A short conversation can help you decide whether that approach fits your situation.
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Integrating Inherited Wealth into Your Financial Plan
An inheritance should not sit in a separate mental bucket. The most effective approach is to review and update your entire financial plan in light of the new assets, rather than simply appending them to what already exists.
Start by reassessing your current financial priorities. Depending on your situation, it may make sense to reduce or eliminate high-interest debt, strengthen your emergency reserves, or accelerate retirement contributions. The right answer depends on your complete financial picture, including your income, existing savings, risk tolerance, time horizon, and goals.
From an investment perspective, inherited assets may not align with your current allocation or risk profile. A portfolio that was appropriate for the person who left the inheritance may look very different from what is appropriate for you. Thoughtful rebalancing, potentially taking advantage of the stepped-up basis to reposition assets without triggering capital gains, can help bring your overall portfolio into alignment.
This is also the right time to update your own estate plan. Review your will, beneficiary designations on retirement accounts and insurance policies, and powers of attorney. An inheritance can significantly change the calculus of your own estate, and failing to update these documents can create unintended consequences for your heirs. For those inclined toward charitable giving, an inheritance may also present an opportunity to honor the memory of the person who left it through donor-advised funds, charitable trusts, or direct gifts to causes they valued.
Protecting Your Inheritance for Future Generations
We are in the midst of the Great Wealth Transfer, a demographic shift expected to move more than $53 trillion from baby boomers to younger generations over the coming decades. If you have received an inheritance, you may now be in a position where your own planning decisions will determine whether that wealth endures for your children and grandchildren or dissipates within a generation.
Trust structures can serve as powerful tools for asset protection and multi-generational wealth transfer. Various types of trusts, such as revocable living trusts, irrevocable life insurance trusts, or dynasty trusts, can help shield assets from creditors, reduce estate tax exposure, and establish clear guidelines for how wealth is distributed over time.
Equally important is educating your spouse and children about the inherited wealth and the responsibilities that come with it. Families that communicate openly about financial values, goals, and expectations tend to preserve wealth more effectively than those that treat money as a private or uncomfortable topic. Long-term stewardship requires a shared understanding of the plan and the principles behind it.
How NEPWA Helps Families Navigate Inherited Wealth
At NEPWA, we help families across New England navigate the complexity of inherited wealth with a coordinated, proactive approach. Rather than offering advice in isolation, NEPWA serves as the quarterback, working alongside your CPA and estate planning attorney to ensure that tax planning, investment decisions, and estate considerations are aligned.
Our work spans three connected pieces: clarifying the full scope of what you have inherited, coordinating the professionals involved so nothing falls through the cracks, and integrating your inheritance into a comprehensive financial plan that reflects your goals, your values, and your family’s future.
Both spouses are included in the conversation, because inheritance decisions affect the entire household. Our role is not to replace your existing advisors but to ensure that every piece of the plan works together.
If you have recently received an inheritance, or expect to, a conversation can help you think through what comes next.
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Frequently Asked Questions
New England Private Wealth Advisors, LLC (“NEPWA”) is an SEC registered investment advisor. Registration of an investment adviser does not imply any specific level of skill or training.
NEPWA is neither a Certified Public Accounting firm or a law firm and does not provide tax or legal advice, respectively, to clients; such services are provided through select third parties unaffiliated with NEPWA. Please contact a tax or legal professional for advice in such matters. The success of any tax mitigation strategy is dependent on each client’s specific situation and results cannot be guaranteed.
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