The Inheritance Planning Mistake Almost Everyone Makes While Grieving

If you are trying to figure out what to do when you inherit money, the hard part is that you are grieving and suddenly responsible for financial decisions that cannot be undone. Most inheritance mistakes I see come from being rushed, and they can trigger taxes, family conflict, or long term regret.

This article covers the logistics and taxes if you are inheriting, how an inheritance fits into your financial plan, and what to do now if you plan to leave money behind.

What to do in the first week after someone dies

My first principle is to avoid rushing big financial decisions. Early on, your job is to get organized, and optimizing the portfolio can wait.

1. Get multiple certified copies of the death certificate. Almost every institution will require one, so get more than you think you need.
2. Locate the will and any trust documents.
3. Identify the executor of the will or the trustee of the trust.
4. List the key assets and accounts, including where each is held, how it is titled, who the beneficiaries are, and whether debt is tied to it.
5. Pay necessary bills, but do not move assets around without guidance.

What a will controls and who has legal authority

A will does not control everything. Retirement accounts, life insurance, transfer on death or payable on death accounts, jointly owned accounts, and assets inside a trust pass by beneficiary designation or by how they are titled. Knowing what goes through probate and what passes outside it affects timing, complexity, and privacy.

Authority follows the same lines. The executor handles assets governed by the will, the trustee handles assets owned by the trust, and beneficiaries control assets that transfer directly to them. Families often get stuck because an institution will not talk to someone who does not yet have legal authority.

Is an inheritance taxable? It depends on the asset

Inheriting money is often less taxable than people fear. Estate tax is typically only relevant for very large estates. For many families the bigger issues are income tax on retirement accounts and cost basis on investments and real estate.

• Cash. The inheritance itself is typically not taxable income, though interest earned afterward is.
• Brokerage accounts. In many cases the cost basis resets to the value around the date of death, known as a step up in basis. Confirm the basis is correct before you sell.
• Real estate. The value can reset in a similar way. Insure and secure the property, then decide as a family whether to keep, sell, or rent.
• Retirement accounts. Money coming out of a traditional 401(k) or IRA is generally taxable income, and inherited accounts have strict distribution rules, especially for non spouse beneficiaries. Roth accounts can be tax free but still have distribution rules.
• Life insurance. Death benefit proceeds are typically income tax free, with planning nuances for large policies.
• Business interests and private investments. Expect paperwork, valuation complexity, and timing delays.

The most common tax mistake I see is taking too much from an inherited retirement account too fast, or missing required distributions. Coordinate the timing with your CPA and advisor.

How to plan for an expected inheritance

I suggest treating an expected inheritance like a possible bonus. Plan A is a financial life that works without it. Plan B is that an inheritance, if it happens, accelerates goals or adds flexibility.

How to use an inheritance wisely

When money does arrive, I think in 3 buckets:

1. Stability. Emergency reserves, paying off high interest debt, and getting insurance and estate documents in order.
2. Goals. A home, kids' education, a sabbatical, a business, or charitable giving.
3. Growth. Diversified, tax aware investing based on your risk tolerance and time horizon.

The non tax mistakes I see are lifestyle inflation that comes too fast, paying off low interest debt instantly without weighing goals and rates, holding a big single stock position because a parent believed in it, and leaving money in cash for years because deciding feels overwhelming.

How to prepare your family if you are leaving money behind

Many people sign the legal documents and name beneficiaries but never talk about any of it. You do not have to share exact numbers, but I think most families should share structure and expectations: where the documents are, who the executor or trustee is, which professionals to call, and what the money is for. A single meeting with adult kids can prevent years of confusion.

It also helps to keep a simple folder listing accounts and institutions, professional contacts, insurance policies, and a one page summary of your plan. Teach your kids gradually how cash flow, investing, and taxes work.

Common questions

Do I have to pay taxes on inherited money?

It depends on the asset. Inherited cash is typically not taxable income, brokerage assets often receive a step up in basis, and distributions from traditional retirement accounts are generally taxable.

Does a will control retirement accounts and life insurance?

Generally not. Those assets transfer by beneficiary designation, outside the will.

Should I count on an inheritance in my financial plan?

I would not. Build a plan that works without it and treat an inheritance as a possible bonus.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

If you inherit money, there’s a weird moment that hits a lot of people.

You’re grieving… and at the exact same time, you’re suddenly responsible for a bunch of financial decisions that can’t be undone.

And the scary part is: most inheritance mistakes don’t happen because someone is reckless.

They happen because someone is rushed.

They get one piece of advice from the wrong person… or they try to “clean everything up” quickly… and that’s how you accidentally trigger taxes, family conflict, or long term regret.

So in this video, I’m going to walk through inheritance in a really practical way, from both sides:

If you’re inheriting, what to do in the first days and weeks, what paperwork actually matters, and how to avoid the biggest financial mistakes.

And if you’re planning to leave money behind, what you can do now to make it dramatically easier for your family, and why communication matters more than the money.

By the end, you’ll have a simple framework you can use whether you’re dealing with this tomorrow… or 20 years from now.

Quick intro and what we’re covering

If we haven’t met, I’m Andy, wealth manager at VDB Wealth. I work with high net worth individuals, entrepreneurs, tech workers, and business owners, and inheritance is one of those topics that comes up constantly… either because someone is receiving money, or because they’re thinking, “I want to do this the right way for my kids.”

Here’s what we’re covering today:

1. The logistics: what actually happens when someone dies and what needs to get done.

2. The tax and estate side: what’s taxable, what isn’t, and the “gotchas” by asset type.

3. How to think about an inheritance in your financial plan, without counting on it too early.

4. Why communication and education are the whole game, especially for the next generation.

Let’s start with the part nobody prepares you for: the logistics.

The logistics: what happens when someone dies

First principle: don’t rush big financial decisions right after someone dies.

There’s a reason people say, “Don’t make life changing decisions while you’re grieving.”

But in inheritance, people do it all the time because there’s pressure: bills still need to be paid, people are asking questions, accounts are frozen, maybe a house needs attention, and family members want to “be efficient” and move on.

So here’s your mindset: slow is smooth, smooth is fast.

Your job in the beginning is not to optimize the portfolio.

Your job is to get organized.

The first week checklist

Here’s the first week checklist I want people to think about.

1. Get multiple certified copies of the death certificate.

2. Locate the will and any trust documents.

3. Identify the executor (will) or trustee (trust).

4. Make a list of the person’s key assets and accounts.

5. Be careful with bills, pay what’s necessary, but don’t start moving assets around without guidance.

Let me unpack a few of those.

Death certificates: the annoying but essential step

Almost every institution, banks, brokerage firms, life insurance companies, will require a certified death certificate before they’ll do anything.

Get more than you think you need. It saves time later.

Will vs trust: what controls what

A big point of confusion: a will doesn’t control everything.

Some assets transfer by beneficiary designation or by how they’re titled, like: retirement accounts, life insurance, “transfer on death” or “payable on death” accounts, jointly owned accounts, assets inside a trust.

So one of the first things we do is map out:

What passes through the will and probate… and what passes outside probate?

Because that impacts timing, complexity, privacy, and sometimes family friction.

The “who has authority” question

One of the most stressful parts is simply: who has the legal authority to do what?

The executor has authority for assets governed by the will and probate.

The trustee has authority for assets owned by the trust.

Beneficiaries have authority over assets that transfer directly to them, once the institution processes it.

This is why families get stuck: someone is trying to do the right thing, but the institution won’t talk to them because they don’t have legal authority yet.

So again: the goal early on is clarity and organization.

A practical “inventory” approach

Here’s a simple way to create an inventory without getting overwhelmed:

1. Cash & bank accounts

2. Brokerage/investment accounts

3. Retirement accounts (401k, IRA, Roth IRA)

4. Real estate

5. Business interests / private investments

And for each bucket, you’re asking: Where is it held? How is it titled? Who are the beneficiaries? Is there debt tied to it? And who is managing it right now?

This inventory becomes the master document that makes everything else easier.

Taxes & estate “gotchas”

Now let’s talk about taxes, because this is where people accidentally step on landmines.

Here’s the headline: inheriting money is often less taxable than people fear, but it depends heavily on what type of asset you inherited.

So I’m going to go asset by asset and highlight the key rules and the biggest mistakes.

Big picture: estate tax vs income tax

Two big categories:

1. Estate tax, a tax on the value of someone’s estate when they die, typically only relevant for very large estates and very dependent on current law.

2. Income tax, taxes you pay when you receive income or take distributions, like pulling money from an inherited retirement account.

Most people accidentally focus on the wrong one.

For many families, the bigger day to day issue is income tax rules around retirement accounts and what happens to cost basis in investments and real estate.

Cash inheritance

If you inherit cash, money in a checking account, savings account, or just a cash distribution from an estate, the inheritance itself is typically not taxable income.

But… two things matter: any interest earned after you inherit it is taxable going forward, and if there’s an estate or trust, there might be timing and reporting considerations depending on how distributions are made.

Practically: cash is simple, but don’t confuse “not taxable” with “no paperwork.”

Brokerage accounts & investments: the step up in basis

If you inherit a taxable brokerage account, stocks, ETFs, mutual funds, this is where a huge benefit often shows up:

In many cases, the cost basis is reset to the value around the date of death. People call this a step up in basis.

Translation: if your parent bought a stock at $10 and it’s worth $100 today, and you inherit it, your taxable gain might effectively start around $100, not $10.

So if you sell shortly after inheriting, you may owe little or no capital gains tax, depending on price movement.

The common mistake is selling something and paying taxes you didn’t need to, because the cost basis wasn’t updated properly, or because the account got mishandled in transfer.

So the practical rule here is:

before you sell inherited investments, confirm the cost basis is correct.

Real estate: similar concept, different emotions

Real estate often follows a similar concept: the value can reset around the date of death, which can reduce capital gains if the property is sold.

But real estate adds emotion and complexity: siblings disagree on whether to keep or sell, someone wants to live in it, someone wants to rent it, someone wants to “do what mom would have wanted,” and the property still has insurance, taxes, maintenance, maybe a mortgage.

Here’s the practical approach I like: get the property insured and secured, get a basic valuation or appraisal if needed, decide as a family: keep, sell, or rent, and don’t let one person silently take control without alignment.

Retirement accounts: where most tax mistakes happen

Now let’s talk about the big one: retirement accounts.

If you inherit a 401(k), IRA, or Roth IRA, the rules are totally different than inheriting a brokerage account.

In most cases, money coming out of a traditional retirement account is taxable income.

And with inherited accounts, there are strict rules about timing and distributions, especially for non spouse beneficiaries.

So the #1 inheritance tax mistake I see is: someone inherits a retirement account and either takes too much too fast and triggers a huge tax bill, or misses required distribution rules and creates penalties or problems.

Here are the high level concepts:

Rules depend on whether you’re a spouse or non spouse beneficiary.

Traditional accounts are generally taxable when distributed.

Roth inherited accounts can be tax free, but still have distribution rules.

Many non spouse beneficiaries fall under rules that require the account to be emptied within a certain time window.

This is the part where you want a coordinated plan with your CPA and your advisor, because distribution timing can be the difference between: paying taxes at a moderate rate spread over years, or stacking income into one year and paying at a much higher rate.

Life insurance

Life insurance is often straightforward: death benefit proceeds are typically received income tax free by beneficiaries.

But there are exceptions and planning nuances depending on ownership, estate inclusion, and how policies are structured, especially for large policies.

If you’re the person leaving money behind, this is where proper structuring matters a lot.

Business interests, private equity, private investments

If you inherit a business interest, an operating business, private equity, venture funds, private real estate deals, expect three things: paperwork, valuation complexity, timing delays.

There might be restrictions on transfers, capital calls, K1s, and delayed tax forms.

This is one of those areas where “just distribute it equally” is not always practical, because one asset is liquid and another is not.

So if you’re planning your estate and you have private investments: it’s worth doing real planning, not just hoping it’ll be easy.

A simple “tax by asset type” recap

Here’s the simplest way to remember inheritance tax rules:

Cash: inheritance itself usually not taxable; future interest is taxable.

Brokerage assets: watch cost basis / potential step up.

Real estate: similar cost basis reset concepts; decisions matter.

Traditional retirement accounts: distributions are generally taxable.

Roth accounts: often tax free distributions, but rules still apply.

Life insurance: often income tax free, with planning nuances for large estates.

Business/private investments: complex, slow, paperwork heavy.

And the bigger rule: don’t take action until you know what type of asset you’re dealing with.

How to think about inheriting money

Now let’s talk about the emotional and planning side, because this is where high earners and successful people get tripped up in a different way.

If you might inherit money someday, the question is:

How should that impact your financial plan today?

Here’s my view:

Most people should treat an expected inheritance like a possible bonus, not a guaranteed paycheck.

The “two plan” approach

I like a two plan approach:

Plan A: your financial life works without an inheritance.

Plan B: if an inheritance happens, it accelerates goals or adds flexibility.

So instead of mentally spending future money, you use it thoughtfully: it could increase your margin of safety, it could reduce your risk later, it could fund a big life goal, it could allow more generosity, or it could change estate planning for your own kids.

But you don’t build your whole life around it.

Common inheritor mistakes (non tax)

Here are the non tax mistakes I see inheritors make:

1. Lifestyle inflation too fast. Not because they’re irresponsible, because it feels like “permission” to upgrade everything at once.

2. Paying off low interest debt instantly. Sometimes that’s emotionally great, sometimes it’s financially suboptimal. It depends on goals and rates.

3. Concentrating risk. For example, inheriting a big single stock position and just holding it because “dad believed in it,” even if it creates a risky imbalance.

4. Avoiding decisions for years. Money sits in cash because it feels overwhelming… and that decision has a cost too.

So the goal isn’t perfection. The goal is:

pause, plan, then act.

A practical “inheritance deployment” framework

Here’s a framework that works really well:

1. Stability: shore up your foundation

2. Goals: fund what matters on your timeline

3. Growth: invest for long term compounding

Stability might be: emergency reserves, paying off high interest debt, making sure insurance and estate docs are dialed.

Goals might be: buying a home, funding kids’ education, a sabbatical, starting a business, charitable giving.

Growth is: investing based on your risk tolerance and time horizon, diversifying, being tax aware.

The mistake is skipping straight to “growth” without stability or goals, or blowing past stability into lifestyle upgrades without a plan.

If you’re leaving money behind: communication & education

Now let’s flip it to the other side: if you’re someone who plans to leave money behind.

This is the part most people avoid.

They do the legal documents… they set up accounts… they name beneficiaries…

…but they never talk about it.

And then when they’re gone, their kids are left trying to interpret: what you wanted, how the money is structured, who to call, and why you made certain decisions.

The “inheritance is a process, not an event” idea

I want you to think of inheritance as a process, not an event.

It’s not just “money transfers.”

It’s: values, responsibility, education, expectations, and family dynamics.

And the more money involved, the more important it is to communicate intentionally.

What to communicate (even if you don’t share numbers)

You don’t have to share exact numbers if you don’t want to.

But I do think most families should share structure and expectations.

For example: “Here’s where the key documents are.” “Here’s who the executor/trustee is.” “Here’s who you call, CPA, attorney, advisor.” “Here’s the general purpose of the plan.” “Here are the guardrails, what this money is for.”

Even a single meeting with adult kids to explain the framework can prevent years of confusion.

Create an “In Case Something Happens” folder

One of the highest ROI things you can do is create a simple folder, digital or physical, called something like:

“In Case Something Happens.”

Where estate documents are stored, a list of accounts and institutions, key passwords / access instructions (securely handled), contact info for professionals, insurance policies, and a one page summary of your plan.

This doesn’t need to be fancy. It just needs to exist.

Financial education: the real gift

And last: financial education.

If you want your kids to be good stewards of wealth, you can’t outsource that to a future inheritance.

Teach them gradually: how cash flow works, how investing works, how taxes work at a high level, how to make trade offs, how to avoid lifestyle traps, and how to talk about money without shame or secrecy.

The goal isn’t to create finance nerds.

The goal is to create adults who can handle responsibility calmly.

Because the truth is: money amplifies whoever someone already is.

And education, plus communication, gives your family the best shot at this being a blessing, not a burden.

Wrap up

So to recap:

Inheritance is emotional, logistical, and financial.

If you’re inheriting: slow down, get organized, understand what type of asset you’re dealing with before acting, and coordinate decisions, especially around retirement accounts and taxes.

If you’re leaving money behind: simplify the logistics, document the plan, and communicate early enough that your kids aren’t guessing after you’re gone.

If this is something you’re navigating, either you’ve received an inheritance, or you’re planning how to pass wealth down, and you want a second set of eyes on the structure, taxes, and your overall plan, that’s exactly what we do at VDB Wealth.

You can reach out through the link in the description, or just send me a message with a little context and we’ll figure out the right next step.

Thanks for watching, and I’ll see you in the next one.