What to Do With an Inheritance: Smart Financial Moves to Consider

Receiving an inheritance can be an emotional experience. Whether it comes after the loss of a parent, grandparent, spouse, or another loved one, it often represents more than just money it reflects a lifetime of hard work, family values, and a lasting legacy. While an inheritance can provide financial security and new opportunities, making thoughtful decisions is essential to ensure those assets continue to benefit you and future generations.

Many people feel pressure to make immediate financial decisions after receiving an inheritance. However, the best approach is often to pause, evaluate your options, and create a plan before making any significant changes. A well-managed inheritance can strengthen your long-term financial future, while rushed decisions can lead to unnecessary taxes, poor investments, or spending that doesn't align with your goals.

At Dunbrook Associates, we help individuals and families throughout Ontario develop personalized financial strategies that protect wealth and support long-term financial success. If you've recently inherited money or expect to receive an inheritance, here are some smart financial moves to consider.

Take Time Before Making Major Decisions

One of the most important pieces of advice after receiving an inheritance is to avoid making immediate financial commitments.

It's natural to want to:

• Purchase a new home or vehicle
• Invest the entire amount immediately
• Help family members financially
• Quit your job
• Pay for large lifestyle upgrades

While some of these may eventually make sense, financial decisions made during periods of grief or emotional stress often aren't the best long-term choices.

Instead, consider placing the funds in a secure, high-interest savings account while you meet with your financial advisor, accountant, and legal professionals to develop a comprehensive plan.

Understand Exactly What You Inherited

Not every inheritance is simply cash deposited into your bank account. Many estates include multiple types of assets, such as:

• Investment portfolios
• Registered accounts
• Real estate
• Rental properties
• Life insurance proceeds
• Business interests
• Collectibles
• Precious metals
• Personal property

Each asset may have different tax implications, ownership requirements, and financial planning considerations. Understanding what you've inherited is the first step toward making informed decisions.

Review Any Tax Implications

Many Canadians are surprised to learn that while there is no formal inheritance tax in Canada, taxes may still apply during the estate settlement process.

Potential tax considerations include:

• Capital gains on inherited investments
• Taxes resulting from the deemed disposition of assets upon death
• Taxable income generated after inheritance
• Rental income from inherited properties
• Future capital gains when inherited assets are sold

Understanding these potential obligations before selling investments or property can help reduce unexpected tax bills.

Working with both your financial advisor and tax professional ensures you make tax-efficient decisions that preserve more of your inheritance.

Build or Strengthen Your Emergency Fund

If you don't already have an emergency fund, an inheritance provides an excellent opportunity to establish one.

Most financial professionals recommend maintaining three to six months of essential living expenses in easily accessible savings. Those who are self-employed or nearing retirement may benefit from even larger reserves.

Having emergency savings helps protect your long-term investments by reducing the likelihood of withdrawing funds during market downturns or unexpected financial challenges.

Pay Down High-Interest Debt

One of the best guaranteed returns available is eliminating expensive debt.

Consider paying off:

• Credit cards
• Lines of credit with high interest rates
• Personal loans
• Payday loans
• High-interest vehicle financing

Reducing debt lowers monthly expenses, improves cash flow, and provides greater financial flexibility moving forward.

However, not every debt should automatically be paid off. Low-interest mortgages or strategically managed investment loans may deserve a different analysis depending on your broader financial plan.

Maximize Your Registered Accounts

An inheritance can be an excellent opportunity to strengthen your long-term savings.

Depending on your circumstances, consider contributing to:

RRSP

Contributing to your Registered Retirement Savings Plan may reduce your taxable income while helping build retirement wealth.

TFSA

Tax-Free Savings Accounts allow investments to grow without future tax on withdrawals, making them one of the most flexible investment tools available.

FHSA

If you're eligible and planning to purchase your first home, a First Home Savings Account offers valuable tax advantages.

Choosing the right combination depends on your age, income, retirement timeline, and future financial goals.

Invest According to Your Financial Goals

Many people feel pressure to invest inherited money immediately. Instead, your investment strategy should reflect your personal objectives—not current market headlines.

Your investment plan should consider:

• Time horizon
• Risk tolerance
• Income needs
• Existing investments
• Retirement plans
• Estate objectives

A diversified portfolio designed around your overall financial plan is often far more effective than chasing short-term investment trends.

For some individuals, this may include:

• Canadian equities
• Global equity funds
• Fixed income investments
• Dividend-paying investments
• Alternative investments
• Professionally managed portfolios

The right allocation depends entirely on your unique circumstances.

Review Your Retirement Plan

An inheritance can significantly improve your retirement outlook.

You may be able to:

• Retire earlier
• Increase retirement income
• Delay CPP or OAS strategically
• Reduce future withdrawal rates
• Improve investment diversification
• Increase long-term financial security

Rather than viewing an inheritance as spending money, consider how it could strengthen decades of retirement planning.

Consider Paying Down Your Mortgage

For many Canadians, eliminating mortgage debt provides tremendous peace of mind.

Benefits may include:

• Lower monthly expenses
• Improved cash flow
• Reduced financial stress
• Greater flexibility during retirement

However, paying off a mortgage isn't always the highest-return financial decision. If mortgage rates are relatively low and your investments have strong long-term growth potential, investing part of the inheritance may produce greater overall wealth.

This decision should always be evaluated within your complete financial picture.

Help Family Thoughtfully

Many people wish to share part of their inheritance with children, grandchildren, or other family members.

Possible options include:

• Helping with education costs
• Assisting with a home purchase
• Contributing to an RESP
• Supporting aging parents
• Establishing family trusts
• Providing charitable gifts

Generosity can be rewarding, but it's important not to compromise your own financial security first.

Remember: you can always give later, but rebuilding retirement savings is much more difficult.

Review Your Estate Plan

Receiving an inheritance often reminds us of the importance of planning our own estate.

This is an excellent time to review:

• Your will
• Powers of attorney
• Beneficiary designations
• Life insurance coverage
• Executor appointments
• Trust planning

If your financial situation has changed significantly, your estate plan should reflect those changes.

Updating these documents helps ensure your own wishes are carried out efficiently and minimizes complications for your loved ones.

Avoid Common Inheritance Mistakes

Unfortunately, many inheritances are significantly reduced because of avoidable financial decisions.

Some of the most common mistakes include:

Spending Too Quickly

Large purchases made without a long-term plan can permanently reduce future financial security.

Taking Excessive Investment Risk

Trying to "grow" inherited money quickly often results in unnecessary losses.

Ignoring Tax Planning

Selling inherited assets without understanding the tax consequences can create avoidable costs.

Making Emotional Decisions

Financial decisions made during periods of grief may not align with long-term goals.

Not Seeking Professional Advice

Many inherited assets involve legal, tax, and investment considerations that benefit from coordinated professional guidance.

Create a Long-Term Financial Plan

Rather than asking, "What should I do with this money?" consider asking:

• How can this inheritance improve my financial future?
• How can it help me retire comfortably?
• How can I reduce financial risk?
• How can I preserve this wealth for future generations?
• What would my loved one have wanted me to accomplish with this gift?

A comprehensive financial plan helps answer these questions while ensuring every dollar supports your broader life goals.

How Dunbrook Associates Can Help

Every inheritance is unique, and there is rarely a one-size-fits-all solution. The best financial decisions depend on your current financial position, tax situation, retirement goals, family responsibilities, and long-term objectives.

At Dunbrook Associates, we work closely with clients to develop customized financial strategies that help them make informed decisions with confidence. From investment planning and retirement strategies to tax-efficient wealth management and estate planning, we provide personalized guidance designed to protect and grow your wealth over time.

Whether your inheritance is modest or substantial, thoughtful planning today can create lasting financial security for years to come.

An inheritance represents more than a financial opportunity it is often the final gift from someone who wanted to improve your future. Treating that gift with careful planning, patience, and professional guidance can help transform it into lasting financial security.

Before making significant financial decisions, take time to understand your options, review the tax implications, and develop a strategy that aligns with your long-term goals. With the right plan in place, your inheritance can become a powerful tool for building wealth, supporting your family, and creating a meaningful legacy of your own.

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