The best place for inheritance money depends on your goals, but start by parking it in a high-yield savings account (HYSA) or money market account for safety and liquidity, then use it to pay high-interest debt, build an emergency fund, or invest for long-term growth in tax-advantaged accounts (IRAs, 401(k)s) or brokerage accounts (stocks, bonds, funds). For significant amounts, consult a financial advisor to help with planning and tax implications.
What to do with an inheritance
Ways to reduce Inheritance Tax
You can typically inherit a large amount without federal taxes because the tax applies to the deceased's estate, not the recipient, and the exemption is very high: $13.99 million in 2025 and $15 million in 2026 per person, meaning most inheritances fall below this threshold. The key is that the estate's total value must exceed these limits for any tax to be owed by the estate. Inheritances themselves (cash, property) are generally not income, but earnings on them (like interest/dividends) or pre-tax retirement funds (like IRAs) are taxable.
Give more money away
Lifetime gifting is a straightforward way to begin reducing your IHT bill. By gifting money during lifetime, that would have been part of an inheritance anyway, you reduce the size of your estate so that there is smaller amount subject to IHT on your death.
With more total assets, you may qualify for alternative investments such as private equity, hedge funds, real estate investments or direct investments in private businesses. “Alternatives offer the potential for enhanced returns and reduced risk that could be hard to find in public markets,” Curtin says.
The "7-year inheritance rule" (primarily a UK concept) means gifts you give away become exempt from Inheritance Tax (IHT) if you live for seven years or more after making the gift; if you die within that time, the gift may be taxed, often with a reduced rate (taper relief) applied if you die between years 3 and 7, but at the full 40% if you die within 3 years, helping people reduce their estate's taxable value by giving assets away earlier.
You can deposit a large cash inheritance into a savings account, either by check or by wire transfer to your bank.
Sometimes, what to do with an inheritance is as much about what you should not do with your inheritance money.
Once you've had some time to heal, you can start thinking about how you want to use your inheritance. A short term-deposit or simply a high interest savings account can be a good place to park your inheritance until you're ready to look at your financial options.
Five serious drawbacks to living trusts
A revocable living trust will not protect your assets from a nursing home. This is because the assets in a revocable trust are still under the control of the owner. To shield your assets from the spend-down before you qualify for Medicaid, you will need to create an irrevocable trust.
Taking both 7 year periods together means that you need to know how much of the NRB has been used on chargeable transfers ('chargeable' gifts) for up to 14 years before death. This is what's known as the 14 year shadow (or sometimes the 14 year rule).
2. Changes to Gifting & Inheritance Rules. Annual Gift Tax Exemption Increase: You can now gift up to $19,000 per person per year without triggering taxes. A married couple can give $38,000 to each child or grandchild tax-free.
The most common methods for transferring wealth to another person are via gifts, trusts, and wills. A fourth option, Family Limited Partnership, allows family members to buy shares in a family holding company and transfer assets that way, often income tax-free.
By far the biggest mistake people make when it comes to IHT Planning is simply not taking action. The issue with IHT and Estate Planning is that it is almost always something that 'can wait' until tomorrow (until it can't of course).