What is wealth due to inheritance?

An inheritance of wealth is any set of assets passed down to someone’s loved ones after they die. Assets could include cash in a bank or savings account, stocks, cars, jewelry, or real estate — anything that is valuable. Assets can therefore be either tangible or intangible, but their basic characteristic is their monetary value. 

The recipient can be someone in the family who is next in line to receive the inheritance, be that a spouse, child, or grandchild. Alternatively, they may be explicitly named as the beneficiary (recipient) in a will, life insurance policy, or retirement plan. 

When this wealth is transferred, some beneficiaries experience a drastic change in their financial situation. Whereas some people earn money and build wealth by gradually working their way up in their career, wealth from an inheritance often comes as a sudden windfall. Even if heirs are expecting to receive one, they’re sometimes surprised by the amount. They may wonder what to do with a large inheritance.

There’s no step-by-step guide that will meet the needs of everyone with an inheritance. Because of the wide-ranging nature of wealth inheritances, what works for one person may be unsuitable for another. However, the following options can bring some clarity to beneficiaries.

Inheriting wealth can come at a time of high emotions, so experts typically advise not to rush into big decisions. After all, the probate process alone (where the assets are transferred in court) can take several months. And if your wealth inheritance includes non-cash assets like real estate or a retirement fund, the process of transferring those assets to your name can also take time.

One potential first step with a cash inheritance is to decide where to deposit it, even if just for the time being. High-yield savings accounts are often considered a safe option for holding money. They keep your funds liquid, so you can access your money whenever you need it. Plus, the cash isn’t just sitting idle while you decide what to do with your inheritance money; it’s also earning some interest.

When was the last time you took stock of your current financial situation? Individuals who have wealth due to an inheritance are often given the advice to tackle any outstanding issues with their money first. If a beneficiary receives a lump sum of cash, experts will typically suggest they clear any high-interest debt before deciding what to spend it on. That’s because the interest rates on credit card balances, for instance, are often high enough to cancel out any returns you might make from putting those inherited assets to work in a savings account.

When receiving a large inheritance, it can be tempting to think of all the things you’ve always wanted to buy, but never had the money for. Some beneficiaries may have a long list of luxury items or people to whom they want to gift money. While there’s no right way of dealing with wealth from an inheritance, thinking short-term can mean you’re not thinking about future needs. Plus, you may have to pay tax when gifting money to children and other relatives. To make sure your wealth lasts, it can be helpful to compile a family financial plan that also takes future requirements into account.

Before creating goals for an inheritance of wealth, you might firstly check if there are any restrictions. With trusts, for example, there may be certain rules on how the money can be used, and in some cases, inheriting wealth comes with expectations from the family about how you’ll protect, maintain, and use it.

Beneficiaries who have free reign over the wealth they’ve inherited might think about how they want to manage the money — typically with an eye to protecting, growing, or allocating it for different goals. You could try using the SMART method for setting financial goals:

• Specific. Define exactly what you want to do. Are you putting your inheritance toward a home or an emergency fund?
• Measurable. Decide how much to allocate, for example, saving $30,000 for a down payment in three years.
• Achievable. You might check whether your goals are in line with any restrictions placed on the inheritance.
• Relevant. Do your goals match your big-picture financial plans?
• Time-bound. Timelines can help you stay focused. A time-bound goal could be to build a diversified portfolio in a year by putting 10% of wealth inheritance toward investing.

You could then put your goals in terms of priority. For example, while a CD account can be ideal for any savings strategy, using an inheritance to fund your retirement account might take priority if early retirement is your main goal.

It’s only natural to want to enjoy wealth from an inheritance — whether that means taking a much-needed vacation or sharing it out among family members and friends. As with most things, a healthy balance is key. Beneficiaries could set aside a certain percentage for fun while also thinking about how they might need to use the money in the future. From building an emergency fund to freeing up other income to contribute to a 401(k) — there are many ways to use wealth inheritance. 

Depending on whether you’re deciding between saving or investing your inherited wealth, or other areas like taxes, estate planning, or retirement, there are different experts to help:

• Retirement financial advisor
• Tax advisor
• Insurance
• Investment
• Estate planning

Inheriting wealth puts beneficiaries in a solid position to continue building generational wealth for their family. With that in mind, you might review your estate plan. The additional wealth can necessitate an update to a will or require a new trust to be set up as a way of protecting assets. This step can be especially important for beneficiaries of large inheritances with minor children or those who may need support managing their inheritance.

In some cases, you inherit an investment portfolio and want to optimize it. An investment advisor can point you in the right direction, but you could also consider the following:

• Do you have enough liquid cash to cover expenses? Savings accounts offer a way of investing your cash for the short term while still having access to your money.

• What level of risk are you comfortable with? Every investment carries some risk, so it’s important to balance potential returns with the risk you are willing to tolerate. To avoid some of that risk, you might consider investing in a certificate of deposit (CD) instead.

• Is your portfolio diversified? A mix of different types of investments (for example, stocks, bonds, and savings accounts) can help mitigate risk.

Remember that investing always carries risk, and there’s every chance of losing your principal. Beneficiaries can carefully consider their risk tolerance before taking this route.

In most cases, you won’t owe federal tax on an inheritance, as it isn’t considered taxable income. However, if the inheritance generates earnings (like interest, dividends, or capital gains), those earnings may be taxable. If you inherit wealth in the form of a retirement account, income tax may be due when drawing down the funds.

There is no federal inheritance tax, but it may apply in several states. Whether you owe depends on the inheritance amount, your relationship to the deceased, and the state’s rules. Certain strategies can also help you minimize inheritance taxes.

The federal estate tax is different — it’s paid by the estate, not the heirs. In 2025, only estates worth more than $13.99 million are subject to this tax.

A qualified tax professional can help with understanding how to handle an inheritance and its tax rules.

If you have come into wealth due to an inheritance, you might first think about placing any cash-based assets into a savings account. A high-yield savings account on the Raisin platform is a suitable place to set aside funds that grow without any action required on your part, but that remain accessible should you need to draw against it for any reason.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.