The Dos and Don’ts of Inheritances

An inheritance often comes with a number of decisions - some are urgent, some that can wait, and some that can affect your finances and your taxes. Knowing what to do and what mistakes to avoid can help you navigate this process with confidence.

The Do's

Do give yourself time.
Unless a deadline forces your hand, there is rarely a reason to make big decisions in the first weeks or months. Put the money somewhere safe (such as an insured savings account) and let the emotional dust settle before deciding what to do with it.

Do find out exactly what you're inheriting and how.
Not all assets pass the same way. Property in a will goes through probate. Assets with named beneficiaries (like life insurance, retirement accounts, and payable-on-death accounts) typically pass directly to the named person. Jointly owned property and assets held in a trust follow their own rules. Knowing which category each asset falls into tells you who has authority over it and what you need to do.

Do work with the right professionals.
An estate attorney can guide you through probate and interpret the will or trust. A CPA can handle the estate's final income tax return and advise you on your own tax picture. A fiduciary financial advisor can help you decide what to do with what you receive by putting your best interest first.

Do understand the tax rules before you act.
From estate tax and inheritance tax to step-up in basis, there’s a handful of rules to navigate to avoid an IRS bill. Tax laws change annually, so be sure to review what’s currently in place – and what applies to your state.

Do keep meticulous records.
Save the death certificate, appraisals, statements showing date-of-death values, and any correspondence. You'll need these for taxes later, and good records can head off disputes later on.

Do secure and maintain physical property.
If you inherit a house, make sure it's insured, locked, and maintained. Many homeowner insurance policies limit or void coverage on a vacant property, and an uninsured loss can wipe out part of the inheritance.

Do communicate openly with others.
Many estate fights come from silence and suspicion rather than genuine disagreement. Share information, keep everyone updated, and use the estate plan as your guide.

Start the conversation today

Download a copy of our workbook—filled with prompts, exercises, and reference materials to help you map out your wishes and discuss your plan with your loved ones.

Download now

The Don'ts

Don't take assets before the estate is settled.
Taking possession of property, cash, or heirlooms before the executor has paid debts and taxes can create legal trouble. If the estate turns out to owe more than expected, you could be required to return what you took.

Don't mix inherited money with your own accounts right away.
Keep inheritance funds separate while you sort things out. Commingling makes record-keeping harder, and in some situations, such as a divorce, it can blur the line between inherited and marital property.

Don’t cash out an inherited retirement account on impulse.
A lump sum withdrawal from a traditional IRA or 401(k) is taxed as ordinary income and can push you into a much higher bracket. Most non-spouse heirs must empty the account within 10 years, and missing required withdrawals can trigger steep penalties, so look at your withdrawal options and timeline first.

Don't sell or give away property before it's been valued.
Get a professional appraisal for real estate, jewelry, art, collectibles, and business interests as of the date of death. Without it, you may have trouble establishing your tax basis, and you might sell something valuable for far less than it's worth.

Don't make big purchases or decisions.
Windfalls are easy to overspend, and an inheritance that feels large can shrink fast once taxes, fees, and impulse decisions are accounted for. Start with creating or updating your financial plan to assess how the money impacts your short- and long-term finances.

Don't ignore deadlines.
Probate timelines, creditor claim windows, disclaimer deadlines, and required minimum distributions (RMDs) all run on fixed schedules, and missing one can be costly or irreversible.

Don't accept the role of executor without understanding it.
If you're asked to serve, know that it is a legal duty that can take a year or more. You're allowed to decline, and many people hire a professional to help.

Don't forget to update your own plans.
After inheriting, revisit your own beneficiary designations, insurance, and estate plan. A significant inheritance can change your tax exposure and your own planning needs.