A Framework for Inheriting Significant Wealth

Receiving a significant inheritance can feel less like a windfall and more like a puzzle. The decisions you make in the first year often set the course for decades to come, determining whether the wealth becomes a source of stability or a complex burden. The key isn’t just about the money itself, but about the structure you build around it.

When you inherit wealth, you also inherit a job. This role involves overseeing investments, planning for taxes, protecting assets, and managing countless administrative tasks. You might receive the assets without the systems needed to manage them effectively. This gap between ownership and a clear plan is where costly mistakes are often made.

This guide offers a framework for navigating the complexities of a large inheritance. We will walk through the essential steps, from understanding what you have received to building a lasting structure for your family’s future. It’s about making deliberate choices in the right order to protect and grow your legacy.

Start with an Audit, Not with Investing

Before making any moves, your first step is to fully understand what you have inherited. Think of it like acquiring a company, not just adding to a portfolio. Each asset has its own history, rules, and implications. You need to underwrite the entire estate to see the full picture.

This means evaluating each component for its:

Cost basis: What was the original value of the asset? This is crucial for calculating future capital gains taxes.
Tax obligations: Are there taxes embedded in the asset, like in a traditional IRA?
Liquidity: How quickly and easily can you convert the asset to cash? Are there any lock-up periods?
Valuation risk: Is the asset’s value stable, or could it fluctuate significantly?
Payout schedule: How and when does the asset generate income or distributions?

A brokerage account might seem straightforward, but selling stocks immediately to rebalance could trigger a massive, and possibly avoidable, tax bill. An inherited IRA might have a 10-year withdrawal rule, but other timing regulations could apply that even experienced professionals can miss. Owning a piece of a family business might look great on paper, but it could also mean dealing with tax forms for phantom income without having any say in the company’s operations.

Knowing the value of what you’ve received is just the start. You need to understand how each piece works legally, financially, and operationally over time.

Segment Your Capital by Purpose

Once you have a clear inventory, the next step is to organize it. Inherited assets shouldn’t all be mixed together in one big pot. Instead, they should be segmented based on their control, time horizon, and purpose. This creates clarity and protects you from making irreversible mistakes.

We recommend mapping your capital into distinct functions:

Immediate Liquidity: This is capital you need for expenses in the next 1-2 years, such as paying taxes, buying a home, or covering other one-time costs. These funds should be kept safe and accessible, not exposed to market risk.
Strategic Flexibility: This layer of capital is for opportunities or unexpected needs that may arise in the medium term. It can be invested more conservatively than long-term assets but should still be reasonably accessible.
Long-Term Growth: This is the core of your wealth, earmarked for compounding over 15 years or more. These assets can be invested for higher growth, as you have the time to ride out market fluctuations.
Legacy: This is capital you never intend to spend. Its purpose is to be passed on to future generations or to support philanthropic goals. The focus here is on governance and preservation before growth.

This segmentation is a practical filter. It ensures that money needed for near-term obligations isn’t tied up in long-term, illiquid investments. It also helps you align your investment strategy with your actual life goals.

Use Your Tax Window Wisely

Tax planning for an inheritance isn’t just about finding deductions; it’s about strategic timing. Many inheritors find they have one or two years of lower taxable income before investment returns, required IRA distributions, or other income streams push them into a higher tax bracket. This period is a critical window of opportunity.

Consider these strategies during your low-income years:

Roth Conversions: Convert funds from a traditional inherited IRA to a Roth IRA. You’ll pay taxes on the conversion now, while in a lower bracket, allowing the funds to grow tax-free for the future.
Capital Gain Harvesting: Intentionally sell assets that have gains to “harvest” them at a lower tax rate. This resets the cost basis, which can save you significant money on taxes when you sell in the future.
Charitable Stacking: If you plan to make charitable donations, consider “stacking” several years’ worth of contributions into a single year using a Donor-Advised Fund (DAF). This can help you exceed the standard deduction, allowing you to itemize and maximize your tax benefit.
Gifting Appreciated Assets: If you’re planning a large donation and have highly appreciated assets, gifting them directly to a charity before a sale can be a powerful move. This often allows you to eliminate the capital gains tax you would have otherwise paid.

Timing is everything. For example, structuring a gift of an illiquid asset before a sale, rather than gifting the cash after, can add hundreds of thousands of dollars in net value to your family and your cause. It’s about being proactive, not reactive.

Establish Clear Governance from the Start

It’s easy to put off conversations about how the wealth will be managed. Families often wait until a conflict arises—a disagreement over a big purchase, a second marriage, or a child’s request for money. By then, it’s often too late to create a smooth process.

We recommend creating a “Family Mandate” document early on. This isn’t necessarily a legal document, but a shared agreement that outlines the purpose of the capital, how decisions will be made, and who will be in charge in the future. It’s about getting on the same page before problems emerge.

On the legal side, structure is foundational. If you’ve inherited assets personally, placing them into a revocable trust is a good first step. But for high-net-worth families, it often makes sense to go further. Structures like Spousal Lifetime Access Trusts (SLATs), asset protection trusts, and Irrevocable Life Insurance Trusts (ILITs) can provide significant benefits. They can separate capital from personal liability, facilitate strategic gifting, and help manage future estate taxes. This isn’t about adding complexity for its own sake; it’s about using established tools to maintain control while preparing for the future.

Master the Administrative Details

Inheriting wealth comes with a surprising amount of administrative work. You’ll likely have accounts at multiple institutions, tax documents arriving at different times, and trusts that need their own compliance and reporting. Without a single, consolidated view, it’s almost impossible to know what’s really going on with your finances.

Many inheritors spend hours each quarter trying to piece everything together. This administrative drag is not just an inconvenience; it can lead to real financial costs. We’ve seen simple mistakes, like moving assets before a trust’s tax ID number was finalized, result in months of delays and significant legal fees to clean up.

The solution is discipline, visibility, and delegation. A good advisory team should be able to automate this for you, consolidating all your accounts into a single reporting dashboard. This gives you a clear, real-time view of your entire financial picture, freeing you to focus on the bigger decisions.

Common Pitfalls to Avoid

As you navigate this process, there are a few common missteps that can create long-term problems for your capital and your relationships. Be mindful to avoid them.

Don’t hold inherited assets jointly. Commingling inherited assets with a spouse can undo important estate planning and asset protection benefits.
Don’t name children as outright beneficiaries. For significant wealth, using trusts can provide protection and guidance for beneficiaries who may not be ready to manage a large sum of money.
Don’t retain legacy advisors without a reassessment. The team that served the previous generation may not be the right fit for your needs. It’s important to evaluate if your advisors have the expertise to handle the complexities you now face.
Don’t make gifts out of guilt or obligation. Financial decisions, especially those involving family, should be made thoughtfully and as part of a larger plan, not as a reaction to pressure.

Building a Lasting Legacy

There’s a difference between families who simply receive wealth and those who steward it successfully for generations. The difference isn’t better investment returns. It’s that they built the right infrastructure early, made decisions in the correct sequence, and created a system that was designed to last. If you have recently inherited $5 million or more and your advisory team hasn’t provided a single, coordinated roadmap covering taxes, titling, asset segmentation, estate structure, and administration, you’ve been handed a checklist, not a strategy. It’s time to build something different. By taking a measured, strategic approach from the beginning, you can create a foundation that supports your family’s goals for years to come