What to Do with a Windfall Inheritance

If you’ve just received an inheritance, you’re probably facing a lot of emotions and unanswered questions. Depending on the events that led to your windfall inheritance, you may be grieving and trying to handle the logistics related to the loss of a family member or close friend.

You might also be contemplating the reality of having access to unexpected funds. Maybe you see new opportunities on the horizon or you’re looking at your current bills, debts, and financial goals and wondering what—if anything—should change given your new circumstances. Or maybe you’re not sure yet if you have access to the money or accounts you’ve inherited.  

When it comes to managing a windfall inheritance, our team has some guidance. Here’s exactly what to consider when you’ve recently come into an inheritance.  

What to Do with a Windfall Inheritance: First Steps 

If you’ve received a windfall inheritance, it’s easy to get overwhelmed quickly.  

Fortunately, your first few steps might be easier than you think. Here are some things to remember in the event you come into unexpected money.  

#1. Avoid reckless financial decisions.  

Your priority should be avoiding any rash, reckless financial decisions. Yes, you may have come into a large amount of funds—and that’s a good thing. It’s still possible to make mistakes or poor decisions with that money.  

A good course of action is to decide you aren’t going to do anything at all with the money for at least a few days. You may even find that making this decision takes the pressure off, allowing you to recuperate more fully before you have to make any decisions. 

#2. Call a financial advisor.  

After you learn that you’ve inherited a sizeable sum of money, your first call must be to a financial advisor.  

Why?  

A financial advisor is: 

• A professional who lends clients critical expertise surrounding personal finances and investments;
• Someone who can connect you with other helpful financial professionals, such as tax professionals and estate planners; 
• Someone who can help you use money to meet your goals, no matter what they may be; and 
• Someone who is, perhaps most importantly, an objective outsider.  
   

A financial advisor will be the person best suited to help you understand the details and logistics of your inheritance. They’ll understand the financial landscape you’re entering, help you manage your priorities, and help you set up your new accounts strategically.  

#3. Educate yourself.  

Taking some time to learn more about your situation before moving forward is key. Your advisor should be able to help you understand the following and may be able to provide additional resources tailored to the inheritance you’ve received (or your specific financial goals.) 

Before making any decisions, be sure you understand the following: 

• The types of accounts you are inheriting. Suddenly having access to life insurance, taxable investment accounts, and IRAs can all constitute very different experiences for you.  
• The tax implications of your inheritance. For example, withdrawals from IRAs will have income tax implications whereas withdrawals from taxable accounts will have capital gains tax implications 

#4. Move forward slowly and strategically.  

Once you’ve gotten through some of the initial reactions to your situation, met with a financial advisor, and learned more about your inheritance, it may be time to make some moves—slow, deliberate ones. 

With the help of your financial advisor, consider whether now is a good time to:  

• Invest funds for the future. Your financial team can help you determine the best types of investment accounts for your funds. Some of this money may go to long-term investment vehicles, such as IRAs—but remember, you can invest money in taxable accounts to keep your money growing and accessible.  
• Tackle (some) debt. It isn’t always a no-brainer to erase all of your debt. You’ll want to consider the type of debt you have before paying it off. Wiping out credit card debt with aggressive interest rates is one thing; a mortgage with a relatively low interest rate is another.  
• Reassess your financial plans. Your goals (and your strategy for achieving them) don’t necessarily need to change now that you’ve received an inheritance, but you may be able to work towards some of your goals more efficiently.  

The key thing to remember is to discuss any significant financial decisions with your financial advisor first. Receiving a sudden inheritance can be a heady thing. It can be startlingly easy to make decisions that don’t serve your long-term goals. Partnering with an objective advisor can eliminate that risk.  

TL; DR: What to Do with a Windfall Inheritance 

Here’s the shortlist of what we recommend:  

DO: 

• Get in touch with a financial advisor. 
• If you’re feeling overwhelmed, consider taking some time for yourself to process the experience. This is particularly relevant if you need to take family or bereavement PTO. 
• If you’re feeling the need to mark the occasion after you’ve spoken with a financial advisor or tax professional, consider allowing yourself to fund one strategic short-term goal.  
• Learn everything you can. If you have unexpected funds at your disposal, you suddenly have a tool you can use to make your life and your loved ones’ lives better. The first step in using that tool responsibly, after talking to experts, is educating yourself. Resources like our blog, Investopedia, and NerdWallet are great starting points.  

DO NOT: 

• Rush into any major decisions like buying a sports car or leaving your job. 

Remember, no matter how much your net worth has increased, your general goals likely haven’t. You may find that with great power comes great responsibility: Now, in addition to your previous goals, you have one more—being a good steward of the funds that were very intentionally given to you. 
 

At Commas, we’re here to support you and your financial goals through major life events – including windfall inheritances! Reach out to our team today for accessible, personal financial advice.  

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.commas.devphase.io. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.