The death of a loved one can be a confusing and difficult time. As you navigate planning a funeral, understanding their estate, and working through your own emotions, dealing with assets you inherited might be the last thing on your mind. Grief can often cloud your thinking, which is why it is usually best to hold off on major financial decisions for the first few months. When you’re ready to address what to do with your inheritance, a financial advisor can be a helpful partner in understanding your options and making advantageous decisions.

First, some logistical background information:

The executor of an estate should be named in the decedent’s will and takes the lead on organizing a meeting to review the will and discuss settling the estate. Depending on state law, the executor has 30-90 days from the date of death to file an inventory and appraisal of the decedent's assets with the probate court, so it might be months before you gain full knowledge of the total value of your inheritance.

If you’ve been named a beneficiary of any of your loved one’s assets, here are five steps you’ll need to take:

• Understand what you inherited. People often associate an inheritance with lump sums of money. However, inherited assets can come in many forms—from savings, brokerage and retirement accounts to insurance policies, business interests, real estate, and other personal property. Before you can make a plan to use your inheritance, you must first understand what you have.
• Gather supporting documentation. Contact the executor of the estate to obtain copies of any documentation discovered during the inventory and appraisal stage. Depending on the assets you inherit, you might need deeds, titles, legal documents, or account statements on hand to work through transferring ownership.
• Check the rules & deadlines. There are important deadlines associated with inheritance and estate tax filings, as well as required minimum distribution rules when you inherit an individual retirement account. There could be outstanding payment deadlines associated with the decedent’s real estate, such as insurance or property tax. Working with a Certified Public Accountant can provide guidance on tax treatments for the assets you inherited—as various account types have different rules. Enlisting professional help can ensure deadlines are met and that you understand the options available to maximize your inheritance.
• Make a plan for how to spend it. If your inheritance includes cash, accounts, or other property that will provide new monetary resources, carefully consider the best ways to use them. Often, it’s best to prioritize financial stability first—by paying down high-interest debt and ensuring you have sufficient savings reserved to cover emergencies. Next, consider investing for growth to support your critical long-term goals, such as retirement. As an inheritance might be an extra—or unexpected—boost to your financial situation, it can also be used to fund short-term goals that enhance your quality of life, such as buying a home, paying for continued education, or traveling to accumulate new experiences.
• Set guardrails. Even with an inheritance, spending should be deliberate and align with your values, goals, and broader financial plan. Set a maximum withdrawal rate to protect yourself from overspending and continue maintaining a household budget to understand where your money is going. Lifestyle creep can quickly deplete even newfound resources, and a slow leak is unlikely what your loved one had in mind when naming you beneficiary of their hard-earned money.

Many people struggle with spending an inheritance; they would rather never spend a dime of it if that meant they could have their loved one back. However, it’s important to remember that this inheritance was left to you as a gift, and responsible, conscientious use of it to improve your life and the world around you is one way you can honor your loved one’s legacy.