Originally published January 2015. Last updated March 2026.
Inheriting money, selling a business, or receiving a large settlement feels like a windfall. But without a plan, sudden wealth disappears faster than most people expect. Here’s how to make it last.
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1. Understand What You Actually Have
Before spending a dollar, figure out the after-tax reality. An inheritance might be tax-free (if it’s from a Roth IRA or life insurance) or fully taxable (if it’s a traditional IRA subject to the 10-year distribution rule). A business sale could trigger capital gains, ordinary income, or both.
Work with a CPA and financial planner to calculate your net after-tax proceeds. The number is almost always less than the headline figure.
Estate tax note: the federal estate tax exemption is $13.99 million per person in 2025. Most inheritances don’t trigger federal estate tax. But in Kentucky, non-Class A beneficiaries (people who aren’t your spouse, children, grandchildren, parents, or siblings) face inheritance tax of 4-16%.
2. Don’t Make Big Decisions Immediately
Put the money in a high-yield savings account or short-term treasury fund and wait 6-12 months before making major moves. Don’t buy a house, start a business, or make large gifts until you’ve had time to think and plan. Emotional decisions with large sums rarely end well.
3. Build a Team You Trust
At minimum, you need:
- A fee-based financial planner (not someone selling products on commission)
- A CPA who understands your new tax situation
- An estate attorney if the amount is significant enough to require trust planning
Get referrals from people you trust. Verify credentials. A CFP (Certified Financial Planner) and a fiduciary standard are table stakes.
4. Create a Financial Plan Before Spending
Map out your priorities:
- Pay off high-interest debt first (credit cards, personal loans)
- Fund your emergency reserve (3-6 months of expenses)
- Max out retirement accounts ($23,500 for a 401(k), $7,000 for an IRA in 2025)
- Invest the rest in a diversified portfolio aligned with your goals and timeline
Then, and only then, consider discretionary spending. Treat yourself, but set a budget for it in advance.
5. Protect the Wealth
- Umbrella insurance: Sudden wealth makes you a target. An umbrella policy adds $1-2 million in liability protection for a few hundred dollars per year.
- Estate planning: Update your will, beneficiaries, and powers of attorney. Consider a trust if the amount is large enough.
- Be cautious about loans to family and friends. If you want to help, give a gift you can afford to lose. Loans to loved ones rarely get repaid and often damage relationships.
FAQ
Is inherited money taxable?
It depends on the source. Life insurance proceeds and Roth IRA inheritances are generally tax-free. Traditional IRA and 401(k) inheritances are taxable as you withdraw them (most non-spouse beneficiaries must withdraw within 10 years under the SECURE Act). Cash and property inheritances aren’t income-taxable, but may be subject to estate or inheritance tax depending on the amount and state.
How much should I give to family?
That’s personal. But a good rule: only give what you wouldn’t miss if it disappeared. And use the annual gift exclusion ($19,000/person in 2025) to keep things tax-efficient.
Schedule a free 20-minute consultation if you’ve recently received a windfall and want a plan to make it last.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
