What to Do With an Inheritance: Smart Moves for Wealth Preservation

Strategies for investing, tax‑planning, and managing an inheritance wisely to avoid costly mistakes.

Inheriting money can feel like a sudden windfall, but it also brings one of the most important financial decisions you’ll face. For many, an inheritance offers the chance to elevate your financial future. At the same time, it introduces tax risks, emotional complexity, and a responsibility to preserve what you’ve been given.

Give Yourself a Moment

An inheritance often comes hand‑in‑hand with the loss of someone important. Emotion plays a big role. Rather than rushing to invest or spending quickly, take a moment to reflect. Let the reality settle in, talk it through with trusted advisors or family, and allow yourself the space to make deliberate decisions.

Revisit Your Financial Plan

When your financial picture changes, in this case, significantly, you need to revisit your roadmap. Update your goals, timeframe, risk tolerance, and whichever holdings you already own. An inheritance isn’t just extra money it may alter your tax bracket, investment strategy, or estate plan. Treat it as a chance to realign everything rather than a separate bucket of “bonus cash.”

Types of Inherited Assets & Their Implications

Here’s a breakdown of the most common inheritance types and what you’ll want to keep in mind:

Real Estate & Tangible Property: Inheriting a home, investment property, or business interest adds complexity. For example, many assets qualify for a step‑up in cost basis, meaning the “tax basis” resets to their fair market value at the decedent’s passing. So if an inherited home is worth $500,000 today, your basis becomes $500,000. You’ll owe tax only on gains after that. But if you rent it out, leave it vacant, or it requires major upkeep, those expenses affect the net benefit. Also, make sure you understand local property‑tax consequences and management responsibilities.
Cash & Investments: Cash is easiest to manage, but before investing it, make sure your foundation is solid. Stocks, brokerage accounts or mutual funds come with tax cost‑basis considerations and market risk. If you inherited highly appreciated stock, the step‑up may give you tax‑advantaged flexibility but continuing to hold due to sentiment (instead of strategy) can impose risk.
Retirement Accounts (IRAs, 401(k)s): These are among the most mismanaged inheritance assets, especially for non‑spouse beneficiaries. Traditional IRAs and 401(k)s do not receive a step‑up in basis. Withdrawals are taxable as ordinary income. You may need to take distributions within 10 years if you inherited after 2019. Spouses have more flexibility. Non‑spouses have fewer. The tax drag can be heavy if not handled thoughtfully.
Life Insurance: Proceeds from a life‑insurance policy are generally received income‑tax free. That gives you clean capital but consider how it fits into your overall plan. You might use it to fund an investment account, pay down debt, or accomplish something meaningful without tax drag.
Family‑Business or Unique Assets: These often carry sentimental value and tax or operational complexity. Before keeping a business or farm, assess what it costs, how it aligns with your lifestyle, what the tax implications are, and whether you want that responsibility long‑term.

Tax Landscape Updates (2025)

Federal Estate‑Tax Exemption: As of 2025 the exemption stands at $13.99 million per individual and $27.98 million per married couple. Next year those numbers increase. Although this means most households will not owe estate tax, other tax burdens remain.

Step‑Up in Basis: Assets inherited generally receive a fresh cost basis equal to fair market value at death, reducing future capital‑gains tax for the heir if sold.

Inherited Retirement Accounts: These do not receive a step‑up in basis. Distributions are taxable and may be required within 10 years (for many non‑spouse heirs) under current rules. Given these realities, inheritance money should be approached not as “bonus money” but as a strategic asset. Make sure to have a strategy to help you distribute the inherited IRA over the next 10 years as tax efficiently as possible. This will require some thought and doing tax projections over multiple years.

Debt or Opportunity: What to Tackle First?

Paying Off High‑Interest Debt: If you have credit‑card debt, personal loans or other high‑interest obligations (say > 8‑10 %), using inheritance dollars to pay them off is often the best move. Eliminating interest payments boosts your net cash flow and removes risk.

Low‑Interest Debt: Suppose you have a mortgage at 3 % or student loans at 4 %. If you could invest your inheritance at 6‑7 % instead, your after‑tax return may beat the interest cost. Emergency Fund & Liquidity: Before locking up inheritance funds, make sure you have 3–6 months of expenses in an accessible, high‑yield savings or money‑market account. Interest rates in liquid vehicles remain favorable vs. previous decades.

Investing the Inheritance: Growing and Protecting

Align with Your Risk & Goals: Determine how this inheritance fits your timeline, retirement soon? Decades away? Will it fund education? Transitioning your portfolio now without a plan can lead to costly missteps.

Maximize Tax‑Efficient Vehicles: If you’ve gained room to contribute, max out retirement accounts (IRAs, 401(k)s) and consider tax‑sheltered vehicles like HSAs or 529s (if relevant).

Diversification Is Still King: Even if you inherited concentrated holdings (stock in a single company, property, etc.), it may make sense to diversify. Holding large pieces for sentimental reasons introduces risk. Now that the step up in basis will eliminate or reduce tax consequences, you can sell a concentrated stock position and diversify it globally to reduce risk.

Fee Awareness Matters: Whether investments are inherited or new, low‑cost strategies (e.g., ETFs) tend to outperform over time because drag from fees accumulates.

Preserving the Legacy: Estate‑Planning & Beneficiaries

Update Beneficiaries: Ensure account designations (IRAs, 401(k)s, brokerage accounts) reflect your current wishes.

Review Trusts and Wills: If the inherited assets included trusts or were themselves part of a large estate strategy, make sure your legal documents align with your goals.

Consider Gifting Opportunities: Even though the estate‑tax exemption is high in 2025, earlier gifting still makes sense if your estate is large relative to that threshold.

Coordinate With Your Advisor and CPA: Taxes, investment strategy and legacy planning must work together.

Mistakes to Avoid

Jumping too fast: Buying “something nice” or rushing into investments without planning can erode value and increase tax cost.
Keeping investments for emotional reasons: If you inherited shares of a company or a property and that holding no longer aligns with your objectives, it may be time to diversify.
Overlooking tax‑impacted accounts: Inherited IRAs and 401(k)s have unique rules, ignoring them can generate unexpectedly high taxes.
Ignoring the tax and legal details: Estate taxes, state taxes, step‑up considerations, they may not apply to most, but they apply to some. Understanding your position matters.

Putting It All Together

Receiving an inheritance is not just about “more money.” It’s about managing a change in your financial landscape. It’s about legacy, responsibility, opportunity. By pausing to reflect, updating your plan, understanding what you’ve inherited, integrating your tax strategy, aligning investment decisions, and protecting the wealth you’ve received, you can turn an inheritance into a foundation for long‑term strength, not short‑term reaction.

If you’d like to revisit your plan in light of an inheritance, evaluate your investment mix, or update your beneficiary strategy, now is a meaningful time to review. At  Seaside Wealth Management, our role remains the same: helping you make decisions that protect what matters and empower what’s next.

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.