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By Eric Croak · Updated April 7, 2026
Many people regard sudden wealth to be dangerous.
You’ve heard the stories: Lottery winners ending up broke in five years. Heirs who burn through millions. But the idea that most people who inherit millions of dollars quickly blow the money on foolish or reckless expenditures is, fortunately, mostly a myth.
Academic research on lottery winners and those who receive large inheritances shows that most people don’t quickly burn through their windfalls. On the contrary, they show that large windfalls like these often lead to better life satisfaction rates and reduced financial stress over many years.
The money doesn’t just vanish. But too often, it doesn’t stick around for generations, either.
That said, we do have a significant problem with intergenerational handling of wealth. Studies show that most wealthy families do not retain significant levels of wealth over three or more generations.
Inherited wealth benefits the direct recipients. But it frequently fails to produce lasting advantages for children and grandchildren—unless the first and second generations avoid common mistakes, and emplace specific structures and safeguards to prevent it.
The reason usually isn’t recklessness. More often, it’s because those receiving millions in sudden wealth are not prepared for it. They have not built the habits, systems, and decision-making frameworks required to manage wealth at that level–systems and frameworks that were likely in place when those fortunes were built.
They don’t have a plan for taxes, investment discipline, spending policy, or family governance. Without those, even a large inheritance can slowly erode—through small decisions, missed opportunities, avoidable mistakes, and the cumulative, pernicious effects of entropy.
This article walks how to avoid the most common mistakes, and how to get a plan in place to preserve your wealth for many years to come.
First, Inventory Your Inheritance.
Before you do anything else, take the time to understand what it is you’ve actually received.Most people don’t just inherit a pile of cash. They receive a diverse collection of assets. And each of these assets may come with a set of liabilities. You need to take time and understand both sides of the balance sheet: The assets you’ve inherited, the cash flow each one potentially generates, and the liabilities that may be attached to them.
For example, you may inherit a property that has a mortgage attached to it, even a large balloon payment due shortly on a hard money loan (common among real estate investors, especially when a property is being rehabbed), ongoing property management fees, or a property tax payment coming due.
If you spend down your available cash too quickly, without understanding these factors, you may run into trouble.
Similarly, you may inherit a property with tens of thousands or even hundreds of thousands in deferred maintenance. Put this off any longer, and you could risk much more severe and expensive damage with the next hard rain.
An inherited property or business may have litigation pending against it, with the possibility of a large judgment or opportunity for a favorable settlement—either one requiring a large amount of cash.
An inherited business can be even more complex, with many moving parts.
Until you’ve taken the time to understand what you’ve inherited – including the assets, the liabilities, and the cash flow profile of the entire portfolio, don’t do any major spending.
Be Patient. Probate Takes Time.
Probate is the court-supervised process for validating and distributing a deceased person’s estate. In simple cases it takes months. In complex ones it takes years. estate.If you are waiting on property still working through probate, plan for that delay. Do not commit those funds to anything until they are in hand.
If you find the probate delay frustrating, that’s a good reminder to take steps ensuring your own assets bypass probate when your time comes. Examples include life insurance, naming beneficiaries on retirement accounts, and holding your assets within trusts outside your estate.
Upgrade Your Advisory Team
If you’ve received a life-changing windfall, there’s a good chance you have outgrown your current advisors. Not every financial advisor, tax advisor, or attorney has experience with your new level of wealth. Now that you’re a “high net worth” client, you likely require your advisors to have a different set of skills.
For example, you may need expert assistance in helping you conduct the inventory we just described above.
Preserve Your Cash. You May Need It Sooner Than You Think.
It’s very tempting to make a big purchase soon after receiving a large inheritance.
Especially if it’s a purchase you’ve been dreaming about and deferring for years. That’s understandable—and hazardous to your wealth.
That vacation property, the nice car, the boat, the ground-floor stake in a friend’s investment—all these are tempting. But they tie up liquidity that you may sorely need later, when the true nature of what you’ve inherited begins to come into focus.
For example: Real estate can be a terrific investment. But it also comes with transaction costs, carrying costs, and no quick way to get cash back out of it. Private investments can be lucrative over the long term. But they may also lock up your cash for years.
Meanwhile, any money you spend on consumption stops compounding.
For most people who are unaccustomed to their new level of wealth, we suggest holding off on major irreversible purchases for at least six to twelve months after receiving a windfall. Keep cash in your bank account until you know exactly what your liabilities and cash flow needs will be.
Establish or Update Your Will
Now that you have acquired significant wealth, the consequences of estate planning mistakes are much greater for your loved ones as well.
Immediately after you receive a large windfall, update your will and beneficiaries to reflect your new assets. Without a will, you won’t get to decide who gets to receive your assets after your death. Probate attorneys will make those decisions strictly according to your state’s intestate laws. And that may not be what you want.
For example, intestate laws routinely disinherit stepchildren or unadopted children. And outdated wills often leave entire fortunes to ex-spouses or estranged relatives rather than to cherished spouses and children.
Additionally, your will determines who will be the guardian of your minor children. If you don’t appoint your children’s guardian in your will, the courts will do it according to intestate law.
Update Beneficiaries on All Inherited Retirement Accounts
If you’ve inherited one or more IRAs or 401(k)s or an annuity or life insurance policy, update the beneficiaries, so that these assets will bypass probate and pass directly to your named beneficiaries upon your death.
Note: Minor children cannot inherit assets directly. So you should consider establishing a trust and appointing a trustee to control the assets on their behalf, or naming a trustee under the UTMA/UGMA provisions in your state.
Address Titling and Ownership Structure Right Away.
How you title an asset determines who controls it, who inherits it, and whether it is protected from creditors. Many people overlook this step. But it’s critically important for maintaining and protecting your wealth, and ensuring the success of your succession and estate planning.
Example: Assets you own within a trust are typically not exposed to your own personal creditors. They are also typically not counted against you for estate tax purposes if it’s held in an irrevocable trust.
Remember: Your assets will not transfer themselves into your trusts on their own! You must take concrete, specific legal steps to establish one or more trusts, and then formally transfer the title to the trust, or change the ownership title to reflect your estate plan and long-term goals.
Failure to complete the transfer of property to the ownership of an established trust is one of the most common and expensive mistakes in estate planning. One of the first steps you should take is to sit down with an attorney to review the title documents on every piece of real estate you own (and every vehicle, boat, or aircraft, for that matter), and ensure it is titled appropriately.
Create a Capital Deployment Plan
Some people hate the word “budget.”
So don’t think of this step as a budget. Think of it as creating a plan for the prudent and disciplined allocation of capital.
This plan is an essential component in ensuring that you remain in control of your newly-acquired wealth, and that the money won’t end up controlling you.
You can’t create a plan for capital deployment unless you’ve taken inventory of your inheritance and identified your liabilities along with your assets. Especially your liabilities coming due within the next twelve months.
Once your inventory is complete, though, and you’ve mapped out your liabilities over the next year or two, you can then establish a “waterfall plan,” creating an order of priority for each liability, and when those are all addressed, for each investment opportunity or for your own personal spending.
Now that you’ve (hopefully) upgraded your advisors and have a “dream team” in place, work with them on putting together your capital deployment plan. Do this before doing any significant spending on consumption, or making any major illiquid or risky new investments that may tie up cash for months or years.
Understand How Your Wealth is Taxed
The tax consequences of what you inherited depend entirely on what type of asset it is — and they vary dramatically.
For example, a taxable brokerage account typically benefits from a stepped-up cost basis at the death of the previous owner. That means you inherit the holdings at their fair market value on the date of death, which means decades of accrued capital gains simply disappear for tax purposes.
However, no such benefit accrues to an inherited traditional IRA or 401(k).
If you inherit these assets, every dollar you withdraw is typically counted as ordinary income, taxed at your marginal tax rate in the year you take it. You may also be subject to state income taxes as well.
Inherited IRAs and the 10-Year Rule
Don’t just cash out inherited traditional IRAs or 401(k)s as soon as you receive them. This is a common and expensive mistake: Every dollar you take from these accounts is typically fully taxable as income.
Taking the money all at once pushes more of your income into higher state and federal tax brackets. It can also cause other unwelcome indirect effects, such as increasing your capital gains tax rate or forcing you to pay higher premiums on Medicare in two years.
Since the SECURE Act passed in 2019, most adult non-spouse beneficiaries have up to ten years to withdraw the money from these accounts. It’s usually a better idea to spread your distributions out over the entire period. This keeps your overall marginal income tax rate down, and helps you keep more money over the long haul.
Update Your Estate Plan to Reflect Your New Inheritance.
Your current estate plan was probably built around what you had before the inheritance.
It likely no longer reflects your new level of wealth.
As of 2026, there’s a federal estate tax of 40% on assets exceeding $15 million per individual ($30 million per couple). That exemption level could come down in future years, if Congress so decides. Many states also impose an estate tax of their own with much lower exemptions.
For non-resident aliens of the United States, that federal exemption on U.S.-situated assets is just $60,000.
Many states also impose an estate tax of their own with much lower exemptions compared to the normal federal exemption.
Proper trust and estate planning is critically important for large estates.
For estates that may eventually exceed the federal or state exemptions, you may want to consider a variety of tools to reduce eventual estate tax exposure such as irrevocable trusts, spousal lifetime access trusts (SLATs), charitable vehicles, and over time, strategic gifting.
Depending on the size of the IRA and your retirement income during that decade, this can push you into a significantly higher bracket for multiple consecutive years. That is not a problem to solve when the distributions come due. It is a problem to plan around now, before the clock has already started running.
Have a Plan to Resist Family Pressure
Requests will come. Count on it.
After a significant inheritance, siblings mention financial hardship. Family members surface with business ideas that need a small investment to get off the ground. Someone needs help covering medical bills.
Helping is fine. But you should stay in control of it, and set limits early.
Don’t Talk About Your Inheritance.
The smaller the circle of people who know about your inheritance, the better.
The people who need to know what you inherited are your spouse, your attorney, your advisory team, and your accountant. Beyond that, be very careful about who you tell.
Inherited wealth often attracts opportunists, jealousy, and lawsuits from plaintiff attorneys seeking deep pockets. Be discreet.
Plan Now to Pass it On.
Securing your own financial future after inheriting millions is relatively easy. Creating family systems, structures, and traditions that ensure your inherited wealth is transitioned and preserved for many future generations is much more challenging—and a rare accomplishment.
That’s not because heirs are reckless. It’s because nobody built the legal, financial, and cultural infrastructure to carry it forward.
Once you’ve taken stock of your inheritance, updated your estate plan documents, and have a handle on how you plan to manage your new level of wealth, we encourage you to take it to the next level, and begin creating the family structures that will help preserve and grow this wealth for your children and grandchildren.
Also Read:
How to invest $5M+ after selling my company: Do I need a family office
Why Ann Arbor Professionals Should Work with a Fiduciary Financial Advisor
Risks of keeping $5M+ in one bank: how do UHNW families manage wealth safely
What a Fiduciary Approach Means for Post-Exit Entrepreneurs and High-Net-Worth Families