Receiving an Inheritance in California

Pause — don't make immediate decisions

Grief and large sums of money are a dangerous combination. Park the funds in a high-yield savings account or money market fund for 6-12 months while you process the loss and develop a plan. There is no rush. 'Sudden wealth syndrome' is real — give yourself time.

Understand what you're inheriting

Common inherited assets, each with different rules: Cash/bank accounts — simplest, no tax. Taxable brokerage accounts — receive a step-up in basis to the date-of-death value. Retirement accounts (IRA, 401k) — different rules for spouses vs. non-spouses (see tax section). Life insurance proceeds — generally income-tax-free. Real estate — also receives a step-up in basis. Annuities — complex, consult a professional.

Know the tax rules for inherited retirement accounts

Spouse: Can roll over into own IRA or treat as inherited. Non-spouse: Must generally withdraw all funds within 10 years (SECURE Act). If the original owner had begun RMDs, annual RMDs are required during years 1-9. Roth IRAs inherited by non-spouses still have the 10-year rule but withdrawals are tax-free. Minor children and disabled beneficiaries have different rules.

Evaluate the step-up in basis

For inherited taxable assets (stocks, real estate), your cost basis is the fair market value on the date of death — not what the deceased paid. This is a massive tax benefit. Example: Your parents bought stock at $10/share; it's worth $100 at death. You sell at $100 — zero capital gains tax. If they'd gifted it to you before death, you'd inherit their $10 basis and owe tax on $90/share gain.

Create an inheritance plan

A common order of operations: (1) Pay off high-interest debt (credit cards, personal loans). (2) Top up your emergency fund to 6-12 months expenses. (3) Max out retirement accounts for the year (401k, IRA, HSA). (4) Fund major goals (home down payment, college savings). (5) Invest the rest in low-cost index funds according to your asset allocation.

Consider the emotional significance

Some inheritances come with emotional weight — a family home, a parent's prized collection, a business. Include emotional factors in your decision-making alongside financial ones. It's okay to keep something that's not 'optimal' financially if it holds meaning.

Get professional help for complex inheritances

For large inheritances ($500K+), complex assets (business interests, trusts, foreign assets), or uncertain tax situations, hire a fee-only fiduciary financial planner and a CPA with estate experience. Avoid anyone who wants to sell you products or manage the money for a percentage — you want advice, not a sales pitch.