What to Do with an Inheritance
Receiving an inheritance is a life-changing event. It opens avenues to endless financial opportunities and new experiences, but also brings massive amounts of responsibility and critical financial decisions.
If you’re wondering what to do with an inheritance, you’re not alone. You’ve got unlimited choices in front of you, but not all of them are the best choices, and even fewer of them will help make sure this financial windfall will help you achieve your personal and professional goals.
Hasty decisions made in the emotional aftermath of a loved one’s passing can undermine the very gift they intended to provide. That’s why taking your time and making sure you have a solid plan is essential.
This guide will walk you through the practical steps for managing inherited wealth wisely, from understanding how inheritance is distributed to incorporating charitable giving financial planning into your overall strategy. If you’re wondering what to do with an inheritance, keep reading—or reach out to Greater Houston Community Foundation at 713-333-2210 to discuss how we can help you align your newfound resources with your values and goals.
Key Insights
- The first significant step after receiving your inheritance should be finding professionals to help you manage it.
- Solidify your short-and long-term financial goals to develop a solid, sustainable plan.
- Don’t make any large or high-risk investments before consulting with a trusted advisor.
- Learn about the tax implications of inheriting money.
- For high-net-worth individuals, giving back to their communities is essential.
Table of Contents
- What is the first thing you should do when you inherit money?
- How do you receive inheritance money?
- The tax implications of inheriting wealth
- Does Texas have inheritance taxes?
- What should you NOT do with inheritance money?
- The smartest thing to do with inherited money? Create a comprehensive financial plan.
- Practical steps after receiving an inheritance
- How the Community Foundation can help
What is the first thing you should do when you inherit money?
The first thing you should do when you inherit money is nothing—at least nothing drastic. While this might sound counterintuitive, taking time to pause and think strategically before making any major decisions is one of the most important steps you can take.
In the immediate aftermath of receiving an inheritance, emotions often run high. Grief, relief, excitement, or even guilt can cloud judgment and lead to impulsive choices. Before you make any significant financial commitments, give yourself permission to take a breath and assess the situation with clarity.
Once things have settled down, here are some important things to take care of:
- Secure the assets.
- Take inventory.
- Avoid immediate major purchases or investments.
- Assemble your advisory team.
We’ll expand on these points later, but for now the most important things you can have are a list of (secured) assets and an advisor you trust. Remember, the inheritance your loved one left you represents their life’s work and their wishes for your future. Honoring that gift begins with thoughtful, deliberate planning rather than reactive decisions.
How do you receive inheritance money?
The process of receiving an inheritance varies depending on how the deceased structured their estate and what types of assets are involved.
Most inheritances are distributed through one of several mechanisms, each with its own timeline and requirements. If the estate must go through probate—the legal process of validating a will and settling an estate—the distribution process can take several months to over a year. During probate, the court oversees the payment of debts, resolution of claims, and ultimate distribution of remaining assets to beneficiaries.
Some assets bypass probate entirely. Retirement accounts, life insurance policies, and certain trusts transfer directly to named beneficiaries without court involvement. These assets often move more quickly, sometimes within weeks of submitting the necessary paperwork to the financial institution or insurance company.
Transferring real estate can be particularly complicated. If you inherit property, you’ll need to work with an attorney to ensure proper title transfer. The property may need to be appraised, and if there are multiple heirs, decisions about whether to keep, sell, or buy out other beneficiaries’ interests will need to be made.
Inheritance is rarely just a financial transaction—it’s a transition. While waiting for distributions can feel difficult, pushing the process or making demands on executors can unintentionally create conflict and delay outcomes. Involving trusted advisors early, along with the Community Foundation, allows philanthropy to play a stabilizing role—helping families slow down, clarify priorities, and navigate inheritance with greater intention and care.
The tax implications of inheriting wealth
The good news is that in most cases, inheritances themselves are not subject to income tax. There are however, several tax considerations that can affect how much you ultimately keep and how you should manage inherited assets.
The type of asset you inherit largely determines your tax obligations.
| Type of asset | Tax implications |
| Cash | Generally not taxable when received. Interest earned after inheritance is taxable income. |
| Stocks, bonds, securities | Receive a step-up in basis to fair market value at date of death. Capital gains tax only applies to appreciation after inheritance. |
| Real estate | Also receives step-up in basis. If sold immediately, minimal capital gains. If held, gains calculated from inherited value. |
| Traditional IRAs and 401(k)s | Withdrawals taxed as ordinary income. Required minimum distributions (RMDs) must be taken according to IRS rules. |
| Roth IRAs | Distributions generally tax-free if the account was held for five years. RMDs are still required for non-spouse beneficiaries. |
The step-up in basis is particularly valuable for highly appreciated assets. For example, if your parent purchased stock for $10,000 that was worth $100,000 at their death, your basis becomes $100,000. If you sell it immediately, you owe no capital gains tax on that $90,000 appreciation.
Inherited retirement accounts require special attention. The SECURE (2.0) Act changed distribution rules for most non-spouse beneficiaries, generally requiring the account to be depleted within 10 years. Strategic planning around when and how to take these distributions can significantly impact your tax liability.
Making the most of charitable giving tax‑deduction strategies tied to an inheritance means understanding the tax treatment of different assets. When professional advisors partner with the Community Foundation, charitable and financial planning can work in concert—helping you give more thoughtfully while maximizing both impact and tax efficiency.
Does Texas have inheritance taxes?
Texas residents have one significant advantage when it comes to inherited wealth: Texas does not impose a state inheritance tax or estate tax. This means that regardless of the size of the estate, beneficiaries in Texas won’t face state-level taxation on their inheritance.
Federal estate taxes may still apply to very large estates. For 2026, the federal estate tax exemption is substantial—estates valued under the exemption amount ($15,000,000 per individual or $30,000,000 for married couples) are not subject to federal estate tax. Only estates exceeding this threshold face federal taxation, with rates up to 40% on the amount above the exemption.
While Texas’s lack of state-level inheritance or estate taxes is beneficial, this doesn’t eliminate all tax considerations. Income generated by inherited assets and distributions from inherited retirement accounts are still subject to federal income tax, and large estates need integrated estate planning and charitable giving strategies more than ever.
What should you NOT do with inheritance money?
Just as important as knowing what to do with an inheritance is understanding what to avoid. Many people who receive unexpected wealth make common mistakes that can quickly erode the value of their inheritance and undermine the financial security it was meant to provide.
| Don’t make any big purchases immediately. |
| The temptation to buy a dream car, take an extravagant vacation, or purchase luxury items can be strong immediately after receiving an inheritance. While treating yourself isn’t inherently wrong, major purchases made in an emotional state often lead to regret. Wait until you have a comprehensive financial plan before making significant expenditures. |
| Don’t quit your day job. |
| Even a substantial inheritance may not be enough to support you for the rest of your life, especially when you factor in inflation, healthcare costs, and unexpected expenses. Before making any career changes, work with a financial advisor to determine whether your inheritance can realistically support your desired lifestyle long-term. |
| Don’t invest in anything risky. |
| Inheritances can attract questionable investment opportunities and people seeking to “help” you invest your money. Be extremely cautious about investing in startups, speculative real estate deals, cryptocurrency schemes, or any investment that promises unusually high returns. |
| Don’t ignore debts. |
| While your inheritance isn’t required to pay off the deceased’s debts (those are the estate’s responsibility), you should address your own financial obligations strategically. High-interest debt should generally be a priority, but even here, consult with advisors about the best approach. |
| Don’t forget to update your estate and financial plans. |
| Receiving an inheritance changes your financial picture, which means your existing will, trusts, and beneficiary designations may no longer reflect your wishes. Update these documents to account for your new assets and circumstances. |
| Don’t act without professional guidance. |
| Perhaps the biggest mistake is trying to manage a significant inheritance on your own. The complexity of tax implications, investment strategies, and long-term planning requires both professional and philanthropic expertise. Attempting to navigate these waters alone often leads to costly errors. |
What is the smartest thing to do with inherited money? Create a comprehensive financial plan.
The single smartest thing you can do with inherited money is to develop a comprehensive financial plan before making any major decisions. This plan should integrate your inheritance with your existing financial situation and long-term charitable goals, creating a roadmap for how to use these resources most effectively.
A comprehensive financial plan does more than simply tell you where to invest your money. It examines your entire financial life—your income, expenses, debts, existing savings, retirement needs, insurance coverage, charitable giving, and estate planning—and shows how your inheritance can strengthen each area.
Financial advisors play a critical role during this time, but meaningful charitable planning also deserves a seat at the table.Preserving generational wealth goes far beyond investment strategies and encompasses family governance, values education, and thoughtful succession planning. These intentional organizational steps, along with implementing planned giving strategies, can help you structure charitable giving in a way that maximizes both your impact and your tax benefits.
Practical steps after receiving an inheritance
Once you’ve taken time to process your inheritance emotionally and begun assembling your advisory team, there are several practical steps to take. These actions will help you organize your affairs and set the stage for effective long-term management of your inherited wealth.
Create a comprehensive inventory of inherited assets
Document everything you’ve inherited with as much detail as possible. For financial accounts, note the account numbers, institutions, and values. For real estate, gather deeds, appraisals, and any outstanding mortgage or property tax information. For personal property of value, consider obtaining professional appraisals.
Continue reading: Why donating appreciated stock makes sense
Consolidate and organize accounts where appropriate
You may inherit multiple accounts at different institutions. While you shouldn’t rush to consolidate everything immediately, working with your financial advisor to streamline your holdings can simplify management and potentially reduce fees. Be particularly thoughtful about inherited retirement accounts, and consider taking advantage of qualified charitable distributions (if you’re of-age), as the rules governing these can be complex.
Address immediate financial needs
If you have high-interest debt, an inadequate emergency fund, or other pressing financial concerns, address these early in the process. Your comprehensive financial plan should prioritize these needs, but don’t wait months to take action on critical issues.
Consider establishing or updating your estate plan
Your inheritance is an opportunity to think about your own legacy. If you don’t have a will, trust, or other estate planning documents, now is the time to create them. If you do have these documents, review them to ensure they reflect your new financial situation and current wishes.
Explore charitable giving opportunities
Beyond the financial benefits of giving, many people find that receiving an inheritance prompts them to think about giving back. If you’re interested in incorporating philanthropy into your financial plan, consider learning about how to set up a donor advised fund at Greater Houston Community Foundation or exploring other charitable vehicles that align with your values and financial goals.
Work with your advisors
Work with your financial and tax advisors to estimate any tax liability associated with your inheritance. If you’ll owe taxes on inherited retirement account distributions or other income, make sure you have adequate funds set aside. This prevents the unpleasant surprise of a tax bill you’re unprepared to pay.
Continue reading: Do donations help with taxes?
Building a legacy in honor of your loved one
Being entrusted with someone else’s wealth is a profound privilege. It carries not just financial responsibility, but a responsibility of character: to steward those resources in a way that reflects the values, relationships, and passions of the person who built them. That weight is worth sitting with before making any major decisions.
Consider what that stewardship can look like in practice. When Houston entrepreneur John R. Eckel, Jr. passed away in 2009, he left behind not only a successful energy company but an extraordinary collection of early 20th-century and contemporary art—and a charitable estate that his trusted friend and colleague Doug Lawing was appointed to distribute.
Rather than dispersing the assets quickly, Doug honored John’s wishes by establishing a private foundation, which has since donated 73 works of art to the Museum of Fine Arts, Houston, endowed a professorship at John’s alma mater Columbia University, and established named galleries at both the MFAH and the Whitney Museum of American Art in New York. Decades later, the ripple effects of John’s generosity are felt by thousands of visitors every day.
When a loved one passes before they’ve had the opportunity to formalize their own philanthropic vision, the inheritor becomes both steward and architect. As Doug reflected about his work with the Eckel Foundation, the goal is simply to honor a too-short life and what that person stood for. That sense of purpose—of giving meaning to what was left behind—is something many inheritors find deeply grounding during an otherwise difficult time.
Continue reading about John R. Eckel, Jr.’s legacy
Still wondering what to do with an inheritance? The Community Foundation can help.
Managing an inheritance wisely requires more than investment expertise—it demands intentional alignment of your financial resources with your values, goals, and vision for the future. This is where Greater Houston Community Foundation can serve as a valuable partner in your planning process.
The Community Foundation specializes in helping individuals and families integrate charitable giving into their overall financial and estate plans in ways that are both personally meaningful and tax-efficient—working in close coordination with their trusted professional advisors.
You don’t need to have all the answers to get started. Our philanthropic advisors serve as an extension of your advisory team, collaborating with your financial, tax, and estate professionals to help clarify your charitable interests, identify high‑impact giving opportunities, and align the right charitable vehicles with your broader planning goals.
Whether you’re interested in establishing a donor advised fund, creating a scholarship program, or exploring other giving options, we provide the expertise and infrastructure to make your philanthropic vision a reality.
Receiving an inheritance is both a privilege and a responsibility. With thoughtful planning, professional guidance, and a clear vision for how you want these resources to serve your life and community, you can honor your loved one’s legacy while creating your own. Call us at 713-333-2210 or reach out directly to get started.
More Helpful Articles by Greater Houston Community Foundation:
- Charitable Giving and the Estate Tax
- Guide to Charitable Remainder Trusts
- Guide to Donating Illiquid Assets
- Guide to Donating Life Insurance to Charity
- How Do Charitable Lead Trusts Work?
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