First Inheritance? What Not to Do in the First 90 Days

The average inheritance in the United States is around $100,000 to $150,000. For many people, it is the largest single sum of money they will ever receive. And the data on what happens next is not encouraging: research suggests that roughly one-third of inheritance recipients have negative savings within two years of receiving the funds.

I have worked with families on both sides of this, helping parents plan the transfer and helping children figure out what to do once the money arrives. The pattern I see most often is not reckless spending. It is a combination of guilt, urgency, and well-intentioned but costly decisions made before the tax implications are fully understood.

What Should You Do First When You Receive an Inheritance?

The first rule is the simplest and the hardest: do nothing for 90 days. Park the cash in a high-yield savings account or money market fund. Let inherited investments sit where they are. Do not pay off your mortgage, buy a rental property, or gift money to siblings until you understand the full picture.

The reason is not emotional (though the emotional argument is valid too). The reason is that different types of inherited assets have different tax rules, and the decisions you make in the first few months can cost or save you tens of thousands of dollars.

What Is the Stepped-Up Basis on Inherited Assets?

The stepped-up basis resets the taxable cost of inherited stocks, real estate, or other appreciated assets (not retirement accounts), you receive a "stepped-up" cost basis. That means the taxable gain resets to the value on the date of death, not the original purchase price.

Example: Your parent bought Apple stock in 2005 for $15,000. On the date of death, it is worth $400,000. If they had sold it while alive, they would have owed capital gains tax on $385,000 of gain. But because you inherited it, your cost basis is $400,000. If you sell it tomorrow for $400,000, you owe zero in capital gains.

The mistake I see: holding inherited stock for years out of sentimental attachment, watching it become a concentrated position, and then selling at a loss. The stepped-up basis was the gift. If you would not buy that stock today with fresh money, selling near the stepped-up value and diversifying is usually the right move.

Inherited IRAs and the 10-Year Rule

Inherited retirement accounts follow completely different rules than inherited brokerage or real estate. Thanks to the SECURE Act, most non-spouse beneficiaries must empty an inherited IRA within 10 years of the original owner's death. There is no option to stretch it over your lifetime the way beneficiaries could before 2020.

The IRS finalized rules in 2024 confirming that if the original owner had already started Required Minimum Distributions, you must take annual distributions AND empty the account by year 10. If they had not started RMDs, you have more flexibility on timing within the 10-year window.

Why this matters: a $500,000 inherited traditional IRA withdrawn in a single year could push you into the 32% or 35% federal bracket, costing $160,000 or more in taxes. Spreading the distributions across 10 years, timed to your lower-income years, can save $30,000 to $60,000 in total tax. I help clients model the optimal distribution schedule based on their projected income in each of the 10 years.

Exceptions to the 10-year rule: surviving spouses, minor children (until they reach the age of majority), disabled or chronically ill beneficiaries, and beneficiaries less than 10 years younger than the deceased. These groups can still use the stretch IRA rules.

How Do You Handle the Emotional Side of Inheriting Money?

This is the part that no tax guide covers, but it is where I spend the most time with clients. Inheritance comes with weight. You feel guilty spending it. You feel guilty investing it. You feel guilty not sharing it. Siblings have different financial situations and different expectations.

I have seen families where one sibling uses their share to pay off debt, another puts it toward a house, and a third invests it. Five years later, the one who invested has three times more than the others, and resentment builds. That is not a financial problem. It is a family dynamics problem that money makes visible.

My advice: separate the emotional decisions from the financial ones. If you want to honor your parent's memory, set aside a specific, defined amount for something meaningful to you, a trip they always wanted to take, a donation to their favorite cause, a college fund for your kids. Then treat the rest as what it is: a financial asset that needs to be integrated into your existing plan.

How to Integrate an Inheritance Into Your Existing Plan

After the 90-day pause, the real work begins. The goal is not to "invest the inheritance" as a separate pot. It is to integrate it into your total financial picture.

• Update your net worth and cash flow. The inheritance changes your numbers. If you have been saving 15% of your income for retirement and you just inherited $300,000, your retirement timeline may have shifted by several years. You can model how the inheritance changes your retirement date against your existing savings rate.
• Check your asset allocation. If you inherited a concentrated stock position or a portfolio that does not match your risk tolerance, the stepped-up basis gives you a tax-efficient window to rebalance.
• Consider high-impact debt. Paying off a 7% auto loan with inherited cash makes mathematical sense. Paying off a 3% mortgage when you could invest at 7% to 8% long-term may not. Run the numbers before making the emotional choice.
• Fund the gaps. Do you have an adequate emergency fund? Are you maxing your 401(k)? Is your estate plan current? Use the inheritance to fill structural holes in your financial foundation before chasing returns.
• Think about estate planning implications. If the inheritance pushes your total estate above the federal exemption ($13.99 million in 2026, potentially dropping to roughly $7 million in 2027), you may need to assess your estate complexity and consider gifting or trust strategies.

When Should You Hire a Financial Advisor for an Inheritance?

If the inheritance is under $50,000 and simple cash, you can probably handle it yourself with a good checklist. If it includes retirement accounts, real estate, concentrated stock positions, or assets in a trust, the tax and planning decisions get complicated quickly.

I help families navigating wealth transitions figure out what to do with an inheritance in a way that honors what was passed down and serves the life they are building. The first conversation is about understanding what you received, what it is actually worth after taxes, and what role it plays in your plan.