26 Jun How to Handle a Large Inheritance
Receiving a large inheritance can feel like both a blessing and a big responsibility. Whether it comes as a surprise or you’ve been expecting it for years, it’s not always clear what to do next.
Before you start spending or making big decisions, take a deep breath and a little time to plan. Here’s how to handle a large inheritance in a way that protects your future.
What Is the First Thing You Should Do When You Inherit Money?
Pause. The best first step is to slow down and avoid rushing into anything, especially big financial decisions.
Start by:
- Letting the emotional weight of the situation settle
- Gathering paperwork, titles, and account statements
- Getting clarity on exactly what you’ve inherited
- Meeting with a financial advisor or estate planning attorney
For example, let’s say you just inherited your parents’ home. Selling it might feel like the right move, but depending on the market, the condition of the home, or whether other family members are involved, it’s wise to get legal advice before taking action.
How Much Can You Inherit Without Paying Taxes?
The good news: Arizona does not have a state inheritance tax. And, in most cases, heirs don’t pay federal income tax on inherited cash or property.
However, there are exceptions. You will have to pay taxes on:
- Retirement accounts like IRAs or 401(k)s
- Investment assets that could trigger capital gains taxes
- Very large estates that exceed the federal estate tax exemption
If you’re not sure what applies to your situation, don’t guess. Talk to a professional before you sell, spend, or transfer anything. The right advice could save you a significant amount of money.
Can You Refuse an Inheritance?
Yes. If an inheritance comes with debt, tax complications, or moral strings attached, you can formally decline it. In Arizona, this process is called “disclaiming” an inheritance, and it must be done in writing.
What to Do with a Large Inheritance
There’s no one “right” way to manage an inheritance. But here are a few smart strategies that can help you make the most of it.
1. Pay Off High-Interest Debt
Carrying credit card debt or personal loans? Using part of your inheritance to pay them off can bring long-term relief and free up your monthly budget.
2. Set Aside Emergency Savings
If you don’t already have 3-6 months’ worth of living expenses saved, consider setting some funds aside in a liquid, accessible account before making any major investments.
3. Invest for the Future
Let’s say you’ve inherited $250,000 from an aunt you weren’t especially close with. It’s tempting to splurge on a kitchen remodel, but you also want to plan for your kids’ college tuition. Even modest investments can grow significantly over time, so meeting with a financial advisor can help you strike the right balance and invest with confidence.
4. Protect Your Inheritance
Inheritances can cause tension, especially in blended families or when expectations don’t match reality. If you anticipate friction, it’s smart to put safeguards in place now. Creating a well-structured trust or working with an estate planning attorney can help you prevent conflicts and maintain control.
Talk to a Professional Before You Act
An inheritance can be life-changing in the best way. But it can also bring unexpected pressure and complicated questions. Before you make any big moves, make sure you understand what you’ve inherited and what your options are.
At Phelps LaClair, we help Arizona families protect their assets for the future. Whether you’ve inherited your childhood home, a retirement account, or a windfall you weren’t expecting, we’re here to help you make smart decisions.
Contact us today to schedule a consultation and get the guidance you need to move forward with confidence.
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