What to do when you inherit money

Inheriting money combines a substantial financial decision with bereavement, which is the worst combination of circumstances for good judgement.

The first decision

Which is to make none.

Put the money somewhere safe and accessible — an instant access account within deposit protection limits — and leave it there for a period.

Several months is reasonable.

Grief impairs decision-making measurably, and decisions made during it are frequently regretted.

Nothing is lost by waiting except a modest amount of return, and a great deal can be lost by acting quickly.

The immediate practical steps

Which are administrative rather than strategic.

Check deposit protection limits, since a large sum in one institution may be unprotected above the threshold — several jurisdictions provide temporary higher protection for large short-term balances such as inheritances and property sale proceeds, which is worth checking.

Understand the tax position, since inheritance may have been taxed at the estate level or may be taxable to you depending on the jurisdiction.

Understand any conditions attached, such as trusts or life interests.

And notify anyone who needs to know, such as if it affects means-tested benefits.

Then the ordinary sequence

Once ready to decide.

Clear high-cost debt, which is a certain return and reduces the monthly requirement permanently.

Establish or complete an emergency fund.

Capture any employer pension match not currently being taken.

Use available tax-advantaged allowances, since these expire annually.

Consider the mortgage, where overpaying is a guaranteed return equal to the rate and where early repayment charges apply.

And invest what remains according to the horizon and purpose, which is discussed elsewhere on this site.

The pressure to spend

Which is real.

Windfalls are associated with rapid dissipation in the research, and inheritances are no exception.

Family expectations, requests for help and a sense that the money should do something significant all contribute.

Which is another argument for the waiting period — it allows the initial pressure to subside and allows a decision rather than a reaction.

Setting aside a defined, modest portion for something meaningful, and treating the remainder separately, is a structure many people find works.

Family and fairness

Where inheritances cause lasting damage.

Unequal inheritances, whether intended or resulting from intestacy, produce conflict.

Informal promises made by the deceased that are not in the will.

Requests from family members for a share or a loan.

And differences in circumstances between beneficiaries.

What helps: dealing with the estate administration properly and transparently; not making promises during the emotional period; documenting any voluntary sharing; and mediation where disputes arise, which is considerably cheaper than litigation.

Deeds of variation, where permitted, allow beneficiaries to redirect an inheritance, sometimes with tax advantages, which is worth knowing about.

Fraud and approaches

Which follow windfalls.

Unsolicited contact about investing an inheritance should be refused entirely.

Probate and estate details are public in some jurisdictions, which means beneficiaries can be identified.

High-pressure investment offers, unregulated products and cryptocurrency schemes cluster around people with new capital.

Checking any firm on the regulator's register, and never acting on an approach you did not initiate, are the protections.

If it is a large sum

Where advice is worth paying for.

Regulated financial advice, particularly for sums large enough that errors matter and for complex tax positions.

Tax advice, since inheritance interacts with your own estate planning and, if invested, with ongoing tax.

Legal advice regarding any trust arrangements or disputes.

And it is worth reviewing your own will, since your estate has changed.

Advice should be paid for on a clear basis, and anyone charging a percentage of assets annually should be assessed on what that costs over decades.

Inheriting things other than money

Which have their own considerations.

Property: whether to keep, let or sell, with tax, maintenance and, if shared with siblings, governance implications.

Shares: which may represent a concentrated position that should be diversified, subject to tax on disposal.

A business, which is a different problem entirely.

Pensions, which frequently pass outside the estate and have their own favourable tax treatment in some systems — which makes them worth understanding before drawing on them.

And personal possessions, where the emotional and financial values differ and where selling is a decision that cannot be reversed.

The perspective

Worth ending on.

An inheritance is generally the largest single sum most people receive, and the difference between handling it well and poorly is measured in decades of consequence.

Almost none of that difference comes from choosing the right investment.

It comes from not spending it quickly, not being defrauded, clearing expensive debt, using tax shelters and then leaving it alone.

General information only, not investment, tax or legal advice. Rules vary enormously by country — consult a regulated financial adviser and a qualified solicitor.