Picture someone eighteen months on from losing a parent. The inheritance is a meaningful amount of money, and it is still sitting almost entirely in a checking account earning next to nothing, because touching it, spending any of it, even investing it, feels like it would somehow be disrespectful to their mother's memory. That reaction is incredibly common, and it is also one of the more expensive ones.
Inheriting money sits at an odd intersection. It's a financial event and a grief event happening at the same time, and most of the advice out there is written for one or the other, never both. This is meant to cover both, starting with the part that matters most in the beginning: what to actually do first.
The first rule is to slow down, just not forever
In the early weeks, avoid big, irreversible decisions. Don't pay off the mortgage, don't quit your job, don't buy a house, don't make large gifts to family, not because any of those are necessarily wrong, but because grief and major financial decisions make a genuinely bad combination. People in that stretch tend to either move too fast, trying to resolve the discomfort by doing something, anything, with the money, or freeze completely, the way the person in that opening example did for a year and a half.
The middle path is simple. Park the money somewhere safe and interest-bearing, a money market fund or high-yield savings account, while you take the time to actually understand what you've inherited and what your options are. That's not avoidance. That's a placeholder while a real plan gets built, and it's a very different thing from letting a windfall sit untouched out of guilt for years.
What you inherited matters more than how much
People tend to think of an inheritance as one pile of money, but it almost never is. A brokerage account, a retirement account, and a house are taxed completely differently when they pass to you, and treating them as interchangeable is usually the first mistake.
Taxable Accounts
Brokerage accounts usually get a step-up in cost basis to fair market value on the date of death. Gains that built up before you inherited it often disappear for tax purposes.
Retirement Accounts
Most non-spouse beneficiaries of an inherited IRA or 401(k) must empty the account within ten years. Spouses have more flexible options, including rolling it into their own IRA.
Real Estate & Property
Inherited property also gets a stepped-up basis, which can make selling soon after inheriting far more tax-efficient than selling appreciated property you bought yourself years ago.
One more wrinkle worth flagging early: if what you inherited passed through a trust rather than directly to you, the rules above don't automatically apply the same way. See our practical guide to trusts for how trust-held assets are typically taxed and distributed.
The step-up in basis, probably the most valuable rule nobody explains well
When you inherit an asset like stock or a house, your cost basis for tax purposes resets to its fair market value on the date the original owner died, not what they originally paid for it. Say a parent bought stock decades ago for $10,000 and it's worth $200,000 the day they pass. You inherit it with a basis of $200,000. Sell it soon after and there's essentially no taxable gain at all.
Compare that to being gifted the same stock while your parent is still alive. In that case you'd inherit their original low basis instead, and a sale would trigger a large taxable gain. This is exactly why selling an inherited asset relatively soon, if you were planning to sell it eventually anyway, is often smarter than holding it for years. Waiting doesn't preserve anything. It just lets new gains build up on top of a basis that was already clean.
The ten-year rule on inherited retirement accounts, in plain terms
Under current rules, most non-spouse beneficiaries, meaning adult children in the typical case, must fully withdraw an inherited IRA or 401(k) within ten years of the original owner's death. You're not necessarily required to take anything out in years one through nine, though if the original owner had already started required distributions before they passed, annual withdrawals during those interim years may be required too. That detail trips people up constantly, so it's worth confirming rather than assuming.
Spouses have more flexibility and can generally roll an inherited account into their own IRA and treat it as their own going forward. For everyone else, the ten-year window is a real planning decision, not a formality. Dumping the entire account out in year ten can push someone into a materially higher tax bracket than spreading withdrawals out deliberately across the full decade.
A simple first-ninety-days framework
You don't need every answer immediately. You need a sequence.
The emotional side nobody prepares you for
Letting the money sit untouched for a year and a half, as in that opening example, is not unusual. Guilt is one of the most common reactions to receiving an inheritance, and it shows up as either paralysis or overcorrection, either freezing entirely or giving large chunks of it away almost immediately to make the discomfort stop.
The other pattern I see constantly involves the family home. Three siblings inherit the house together. One wants to sell right away and split the proceeds. One wants to keep it as a place for the family to gather, the way it always has been. One lives two states away and mostly just wants the whole thing to be simple. None of them are wrong, and none of this gets solved with a spreadsheet. It gets solved with an honest conversation, sometimes with a neutral third party in the room, before anyone's made a decision they can't walk back.
The mistakes people make
Paying off a low-interest mortgage on impulse instead of asking whether the money could do more elsewhere. Making a large depreciating purchase right away, a car, an elaborate trip funded straight from principal, before there's a real plan in place. Forgetting to update beneficiary designations on the accounts you just inherited, which often still list the deceased person's old beneficiary or no one at all. Overlooking state-level inheritance or estate tax rules, since a handful of states still tax inheritances directly, separate from anything at the federal level, and the rules often depend on your relationship to the person who passed. And gifting large sums quickly out of guilt or family pressure, before you've had time to understand what your own long-term plan actually needs.
None of these mistakes come from carelessness. They come from making decisions while grieving, without anyone slowing things down enough to ask the right questions in the right order. And overlooking state-level rules is its own trap: see our guide to estate planning basics for the broader picture beyond what you've just inherited.
How Inheritance Wealth Planning Works With Merels Capital
Merels Capital helps families work through exactly this, sorting out what you've inherited, what it means for your taxes, and how it fits into the rest of your plan, with our team coordinating the pieces so nothing gets missed in the process. If you're sitting on an inheritance and aren't sure where to start, book a no-obligation introductory appointment and we'll walk through it together.