Receiving an inheritance, whether large or small, often comes with a wide range of emotions, from the grief of losing a loved one to the hope and excitement about the possibilities the inheritance may create. According to Northwestern Mutual’s 2025 Planning & Progress study, over half (57 percent) of Americans who expect to receive an inheritance view it as critical to their long-term financial security.[1] Despite this high reliance, many people lack adequate preparation or guidance to effectively manage inherited funds. If you are about to receive an inheritance, there are several steps you can take to ensure that your funds will last longer than a few years.
1. Avoid Making Hasty Decisions
The initial mix of excitement and grief when receiving an inheritance can lead to impulsive financial decisions. One of the most important steps you can take is to resist the urge to immediately make significant decisions. Instead, follow these best practices:
Secure your inheritance first. Before anything else, transfer the inheritance to a secure account such as a high-yield savings account, a money market account, or a short-term certificate of deposit (CD) until you have had enough time to put together a long-term financial plan.
Build your emergency fund. If you do not already have one, consider establishing an emergency fund that will cover at least six months (or whatever amount of time feels right to you) of essential living expenses. If you already have an emergency fund, consider adding to it to cover a full year.
If married, decide whether to keep the inheritance in your sole name. If you are married, you will need to decide early on whether you want to keep the inheritance in your separate name or place the funds in an account that you jointly own with your spouse. This decision has significant legal and financial implications, particularly in the event of divorce or if one spouse has outstanding debts. Consulting with an attorney on this point is highly recommended.
Understand gifting implications. If you are considering giving a portion of your inheritance to your children, other loved ones, or a charity, get professional advice before you proceed. Certain gifts above the annual exclusion amount may lead to gift tax liability or reporting requirements.
2. Invest in Your Future: Prioritize Retirement and Debt
For many, an inheritance presents an opportunity to significantly boost long-term financial security.
Maximize your retirement savings. If you are still working, consider increasing your contributions to your retirement account, especially if you are not currently contributing enough to receive your employer’s match. If your employer does not offer a retirement plan, or even if they do, opening and fully funding an individual retirement account (IRA) each year can be a smart move due to its tax advantages and compounding growth potential.
Strategically manage your inherited retirement account. If you have inherited a traditional IRA or 401(k), understanding the rules is critical to minimizing taxes. Under current law, most non-spouse beneficiaries are subject to the 10-year rule, which requires that the entire amount in the account be withdrawn within 10 years following the original owner’s death—potentially leading to significant income tax consequences. However, spouses often have more flexible options, including rolling the inherited IRA into their own IRA (called a spousal rollover). Professional guidance is essential to navigating these complex rules and optimizing your inheritance.
Eliminate high-interest debt. Before making new investments, consider using a portion of your inheritance to pay off high-interest consumer debts such as credit card balances or personal loans. Eliminating these high-interest payments can often provide a bigger benefit than potential investment gains.
3. Hire a Team of Professional Advisors
Navigating a significant inheritance can be complex and trying to do it alone can easily lead to missteps. Building a team of professional advisors is crucial for developing a comprehensive, long-term strategy that protects and grows your newfound wealth. These professionals can work collaboratively to ensure that all aspects of your financial picture are addressed.
Financial advisor. Your financial advisor will be your go-to for managing your finances, assisting you with
analyzing your current financial situation and establishing a solid financial foundation
developing an investment strategy tailored to your risk tolerance and goals
managing your credit and debt
planning for specific goals such as saving for college, buying a home, or planning for retirement; and
looking into charitable giving options.
Insurance agent. Your insurance agent will play a crucial role in ensuring that you, your loved ones, and your property are properly insured. They can review your existing coverage and advise you on essential insurance needs (life, long-term care, and liability) to help safeguard your financial future.
Accountant or tax professional. A knowledgeable tax professional will help you
understand the tax implications of your inheritance (e.g., stepped-up basis rules for capital gains)
optimize cash flow and minimize income taxes wherever possible; and
navigate the tax consequences of any gifting you plan to do.
Estate planning attorney. An estate planning attorney will help you ensure that your own legacy is secure by
creating or updating your own estate plan (everyone needs a will or revocable trust, medical power of attorney, advance directive, and durable financial power of attorney)
developing strategies to decrease or eliminate potential federal or state estate taxes based on what you currently own
structuring gifting strategies to achieve your charitable goals and pass on your values to the next generation; and
implementing strategies to protect your inheritance (as well as your other accounts and property) from potential creditors, predators, and future lawsuits.
Secure Your Legacy
An inheritance, regardless of its size, presents a significant opportunity. With careful planning and the right professional support, it has the potential to provide lasting financial security for you and future generations. Do not leave this important financial event to chance. We are dedicated to helping individuals like you navigate the complexities of receiving, growing, donating, protecting, and ultimately passing your inheritance on to your loved ones. Contact us today for a consultation to discuss how we can help you make the most of your inheritance.
How to Make Your Inheritance Last