Receiving an unexpected inheritance while already in retirement can spark a mixture of emotions—gratitude, uncertainty, and even a bit of overwhelm.
In this episode, we dig into the practical and emotional aspects of managing an inheritance, answer common questions, and guide listeners toward making wise and meaningful decisions.
With over $105 trillion expected to change hands in the coming decades, the need to understand how best to handle inherited wealth has never been more vital.
Assessing Your Inheritance: What Did You Actually Receive?
The best place to start is with a clear assessment, evaluating what you received and how it fits into your existing financial plan.
Not all inheritances are the same, and knowing the account type is crucial. Cash and non-retirement brokerage accounts generally have different tax implications than inherited retirement accounts like IRAs or annuities. Sometimes, the simplest step is to temporarily park the funds in a bank account or, if already invested, leave the accounts where they are while you decide how to proceed, especially during the emotional aftermath.
Understanding Tax Implications
Taxes are often a primary concern. Many mistakenly assume they’ll face hefty taxes across all inherited assets, but it truly depends on what you’ve inherited.
- Cash and Brokerage Accounts: Typically, these don’t trigger a tax event upon inheritance. For brokerage accounts, you might receive a “step-up” in cost basis, eliminating much of the capital gains tax if you decide to sell shortly after inheriting.
- Retirement Accounts (IRAs, Annuities): These often have mandatory distribution rules and can bring significant tax obligations.
The account type determines whether taxes are owed, how much, and when distributions become necessary.
Honoring Family and Planning Ahead
Receiving an inheritance often means balancing personal benefit and honoring the loved one who passed. There’s no rush; allow yourself time to process and choose with intention. Some opt to pay off debts or enhance their retirement lifestyle, while others use the funds for meaningful goals such as travel, hobbies, or supporting the next generation.
It’s common to feel guilt about spending on yourself, but it’s okay to use inherited funds for personal fulfillment, especially if it aligns with the values of the loved one who left it. Charitable giving is another avenue—leveraging donor-advised funds or qualified charitable distributions (QCDs) can offer both tax benefits and a way to honor your loved one’s passions.
Proactive Estate Planning
Conversations about future inheritances can be challenging, but they provide opportunities to optimize tax outcomes, clarify intentions, and reduce surprises. For example, tax-efficient strategies might include Roth conversions at lower rates or distributing assets based on beneficiaries’ financial circumstances. Early communication and coordination with family members and advisors ensure a smoother process when the time comes.
Permit yourself to take a balanced approach; it’s not an all-or-nothing decision. Mix practical steps—like paying off debts or reinvesting—with meaningful gestures, whether a special trip, charitable gift, or supporting family. Taking your time and seeking guidance ensures your decisions honor both your loved one and your financial future.
The Four “C” Framework & Reassurance
The Four C’s are a simple way to remember what helps families handle inheritances better—especially if conversations happen before a loved one passes:
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Coordination
Align family members and decision-makers (and advisors, if involved) so actions like tax planning, account strategy, and who receives what assets are intentionally structured—not accidental. -
Communication
Actually talk about it. Without communication, inheritances often arrive as a surprise, deadlines can get missed (especially with retirement accounts), and opportunities for better tax outcomes can be lost. -
Confidence
Coordination + communication tends to create confidence: people feel clearer about what to do, why they’re doing it, and how it fits their retirement plan—reducing paralysis and second-guessing. -
Comfort
Confidence leads to comfort: peace of mind that the inheritance is being used purposefully—whether that’s strengthening retirement security, supporting family, giving charitably, or funding experiences that honor the person who left it.
Outline of This Episode
- [00:00] Managing inheritances in retirement
- [06:23] Financial planning and decision strategies
- [10:08] Inherited Funds: Sharing and Gifting
- [12:51] Inheritance Planning and Tax Implications
- [16:11] Coordination and Communication Priorities
- [18:53] Financial Guidance and Resources
Resources & People Mentioned
- Article – QCDs: A Retiree’s Secret Weapon to Slash Taxes
- Cerulli Anticipates $124 Trillion in Wealth Will… | Cerulli Associates
- Navigating Inherited IRA Rules, ep 228
- Cameron Hendricks at Financial Symmetry, Inc.
