What to Do After You Inherit Money Checklist

Use this checklist to guide you through the important steps to take after inheriting money, from understanding tax implications to making wise financial decisions.

1. Take Time to Reflect

Pause Before Making Decisions: Allow yourself time to process the inheritance before making any major financial decisions.
Consider Emotional Impact: Acknowledge any feelings associated with the inheritance and the loss of your loved one.

2. Gather Information

Obtain Documentation: Collect all relevant documents related to the inheritance, including the will, trust documents, and financial statements.
Understand the Source: Know where the money is coming from (cash, investments, property) and any specific terms attached to it.

3. Familiarize Yourself With Inheritance Limits & Plan For Taxes

Understand Tax Implications: Research the federal and state inheritance tax laws, as they can vary significantly.
- Federal Limits: Currently, there is no federal inheritance tax, but estate taxes may apply if the estate exceeds the federal exemption limit (currently $12.92 million for 2023).
- State Laws: Different states have varying inheritance tax rates and exemption limits. Familiarize yourself with the laws in your state, as some states impose taxes on the value of inherited assets.
Consult a Tax Professional: Engage a tax professional to understand any tax implications related to the inheritance (income tax, estate tax) and to ensure compliance.
File Necessary Forms: Ensure that any required tax forms related to the inheritance are filed correctly and on time.

Tip: When you inherit money, it’s crucial to understand both federal and state estate tax laws, as they can significantly impact the amount you receive. For instance, the federal estate tax exemption for 2024 is $13.61 million per person, meaning estates valued above this threshold are subject to federal estate tax. Additionally, some states impose their own estate taxes with varying exemption amounts and rates; for example, New York’s estate tax applies to estates exceeding $6.94 million, with rates ranging from 3.06% to 16%

4. Consult Professionals

Estate Attorney: Consider consulting an estate attorney for guidance on any legal matters related to the inheritance.
Financial Advisor: Work with a financial advisor to discuss investment strategies and long-term financial planning.

5. Assess Your Financial Situation

Review Current Finances: Take stock of your current financial situation, including debts, savings, and expenses.
Determine Your Financial Goals: Clarify your short-term and long-term financial goals to understand how the inheritance can help.

6. Evaluate Debt Management

Pay Off Debts: Consider using a portion of the inheritance to pay off high-interest debts (credit cards, loans) to improve your financial health.
Emergency Fund: If you don’t have one, consider setting up an emergency fund for unexpected expenses.

7. Plan for Taxes

Understand Tax Implications: Research any tax implications related to the inheritance (income tax, estate tax) and consult a tax professional.
File Necessary Forms: Ensure that any required tax forms related to the inheritance are filed correctly and on time.

8. Invest Wisely

Diversify Investments: Consider investing a portion of the inheritance in diversified assets (stocks, bonds, mutual funds) to grow your wealth over time.
Retirement Accounts: Explore the possibility of contributing to retirement accounts to enhance your future financial security.

9. Consider Charitable Contributions

- Give Back: If it feels right, consider donating a portion of the inheritance to charities or causes that were important to your loved one or to you.

10. Document Your Decisions

Keep Records: Maintain detailed records of all decisions made regarding the inheritance, including spending, investments, and contributions.
Create a Financial Plan: Document your financial plan, outlining how you intend to use the inherited funds to achieve your goals.

11. Review Regularly

Set Reminders for Reviews: Schedule regular reviews of your financial situation and the impact of the inheritance on your overall goals.
Adjust as Necessary: Be prepared to adjust your financial plan based on life changes or shifts in your financial situation.