Surprise, You Just Received an Unexpected Inheritance. Now What?

Joshua Dobi |

In life, we may find ourselves unexpectedly bestowed with an inheritance, whether it’s money from family, a distant relative, or a friend. This windfall can come in various forms, from cash to investment accounts, property, possessions, and more. But what should you do from a financial planning perspective when this happens? In some cases, there’s little preparation because the nature of the inheritance is unknown. In such situations, reaching out to a tax advisor or financial planner is a wise first step, as there are numerous details to consider. 


At North Main Financial, we frequently assist clients with inheritance planning. We recently helped a client who suddenly inherited assets from a deceased parent. This situation presented complexity, but we approached it with our usual thoroughness. We carefully reviewed the paperwork, assessed the client’s current financial situation, examined tax implications, and considered their future financial plans.


In our client’s case, there were trusts with sub-trusts, each serving distinct purposes, from financing grandchildren’s education to ensuring financial security for a family member with special needs. There were also standard inheritances, including retirement and trust accounts. To tackle this complex web, we started with a broad overview and collaborated with an executor and attorney trustee who were not family members. 


This is just one example of the complexities an inheritance can bring. So, how should you approach an unexpected inheritance? In many cases, the process can be straightforward, involving a few forms and tax explanations. However, it can also be intricate, requiring time and careful consideration. Therefore, consulting with a tax advisor or financial planner is a prudent choice.


Reflecting on our client’s unique situation, we’ve distilled three essential points to consider when dealing with an inheritance:


Understand Tax Ramifications

When dealing with an inheritance that includes retirement accounts, it’s crucial to grasp the potential tax consequences of various choices. These ramifications can be significant, particularly if you don’t require the funds immediately. Explore options like a stretch IRA, which allows you, as a beneficiary, to withdraw funds based on Required Minimum Distributions (RMDs) to minimize tax liability.


The type of retirement account you inherit matters. A beneficiary IRA, for instance, can be established for an inherited IRA, 401(k), 403(b), or other ERISA-level plans. Your relationship to the original account owner determines the designation as a spousal or non-spousal beneficiary, influencing distribution options and tax implications. 


Assess How Your Inheritance Impacts Your Financial Plan

Upon receiving an inheritance, evaluate your current financial situation and understand its impact on your financial plan going forward. A beneficiary IRA may not be necessary if the inheritance is relatively small and won’t significantly alter your financial landscape or lifestyle.


However, if the inheritance is substantial, it’s essential to quantify how it affects your overall financial picture. For instance, it could allow for early retirement, which, while exciting, requires careful consideration regarding work, insurance, and other factors.


Ensure Implementation

Planning is only the beginning. After crafting a strategy that aligns with your goals and beneficiaries, following through with the necessary actions is crucial. This may involve setting up investments, trusts, or other financial instruments to secure your beneficiaries’ futures.


In our client’s case, we established trusts to provide for their children and explored philanthropic strategies to maximize the impact of their inheritance on charitable causes. This was their best path, but it may not be for you. Again, every situation is different and needs to be treated individually.


In summary, handling an unexpected inheritance can quickly become complex, considering numerous factors. Consulting with a tax accountant or financial planner is advisable, as they can help navigate the legal intricacies and provide suitable options to guide you through your unique situation.


If you have questions about your financial space or a recent inheritance, call us at (704) 987-1425 or visit us virtually at If you wish to schedule an introductory meeting, we would be happy to meet with you at no cost or obligation to you.


These Blogs are provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Osaic Financial.