An inheritance can be a blessing—or a mess, depending on what you do with it. Some folks treat it like a winning lottery ticket, blowing through it in record time. Others panic, do nothing, and let it sit there, collecting dust. Neither of these approaches will help you build a solid financial future. So before you make a move, let’s talk about how to handle an inheritance the right way.
Slow Down—Your Bank Account Isn’t on Fire
The moment that money or stock portfolio lands in your lap, you might feel like you have to do something immediately. Sell it all! Invest it all! Pay off everything! But hold on—this isn’t a race.
I once met a lady who had inherited a stack of stocks and, in a total panic, sold them right away. A few months later, those same stocks had skyrocketed in value. If she had just hit the pause button and taken the time to understand what she had, she could have made a much smarter choice.
Warren Buffett—who knows a thing or two about money—once said, “The stock market is designed to transfer money from the impatient to the patient.” In other words? Rushing leads to regret. Take a deep breath, sit tight, and get a game plan.
Don’t Let the Tax Man Take More Than His Share
If you’re an American living in Israel, inheriting U.S. assets comes with tax rules that could make your head spin. One of the biggest traps? Israel doesn’t recognize the U.S. “step-up in basis”—which means your tax bill could be way higher than you expect.
Now, what’s a step-up in basis? In the U.S., when you inherit assets like stocks or real estate, the tax system gives you a break. Instead of owing taxes based on what the original owner paid, you get to “step up” the value to what the asset was worth when the original owner died. This can dramatically cut the taxes you owe when you sell.
But here’s the catch—Israel doesn’t follow this rule.
I had a client who inherited stocks her dad bought decades ago for next to nothing. By the time she received them, they had skyrocketed in value. She assumed she’d only owe taxes on gains from the date she inherited the shares. However, after consulting with her accountant, she discovered that Israel taxes inheritances based on the original purchase price her father paid. This left her facing a much larger tax bill than she expected.
Moral of the story? Before you sell or move that money around, get the facts straight. The tax rules don’t care if you “didn’t know”—they’ll take their cut either way.
Letting Go of Sentimental Investments (Without the Guilt Trip)
A client once told me, “I know I should sell some of these stocks, but they were my dad’s favorites. Selling them feels wrong.”
I get it. It’s like trying to throw out that old, tattered T-shirt from college—it doesn’t fit, it’s falling apart, but it reminds you of good times. The problem? Holding onto investments for sentimental reasons can cost you big time.
This is called the endowment effect—when we think something is worth more because we own it. But that’s simply poor money management. Your portfolio should reflect your financial goals, not your emotions.
I once worked with a client who inherited a bond-heavy portfolio from her retired father. Bonds gave him steady income, but she had decades ahead of her. Once she shifted her investments to match her long-term plans, her money actually started growing for her instead of just sitting and collecting dust.
So here’s the question: If you were starting fresh today, would you still choose these investments? If not, maybe it’s time to stop treating them like family heirlooms and start putting them to better use.
Make Sure the Money’s There When You Need It
A client planned to use her inheritance to buy a home—but most of the money was tied up in stocks. She was one market dip away from watching her down payment disappear.
This is where liquidity (a fancy word for how easily you can turn an asset into cash) matters. If you’ll need money soon, don’t park it in high-risk stocks and hope for the best. The last thing you want is to sell at a loss because the timing isn’t right. A well-balanced plan lets you keep some growth potential while making sure the money’s there when you actually need it.
Don’t view an inheritance as free money—it’s an opportunity to make smart financial choices. With the right strategy, you can turn it into something that lasts. If you’re dealing with an international inheritance, check out Simplifying Your Cross-Border Inheritance: A Beneficiary’s Guide to learn how to handle trusts and assets across borders.
Remember, money doesn’t manage itself—so take charge, make a plan, and turn your inheritance into a financial win.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of this website, Portfolio Resources Group, Inc. or its affiliates. Neither Profile nor Portfolio Resources Group, Inc. or its affiliates, provide tax or legal advice. Nothing in this article is intended to be investment, tax, or legal advice. Information in this article is gathered from sources considered reliable, but we cannot guarantee their accuracy. Past performance is no guarantee of future returns.
