Why Receiving an Inheritance Changes Your Estate Plan

Receiving an inheritance can be a meaningful and transformative experience, but it can also create challenges if not handled thoughtfully. Without a clear plan, an inheritor may struggle to manage newly acquired assets, face creditor or tax issues, or lack the financial experience needed to preserve and grow what was left to them. A well-designed estate plan can help anticipate and mitigate these risks by providing structure, guidance, and protection around inherited wealth. If you have received—or expect to receive—an inheritance, it is essential to create a comprehensive estate plan or update your existing plan to reflect your new circumstances and long-term goals.

An Inheritance Can Shift Your Financial Picture

An inheritance may change the size and makeup of your overall financial picture in a major way, potentially shifting your long-term tax, financial, and estate planning goals. If you inherit rental property, a business interest, or complex investments, your existing estate plan may not address how those assets should be managed and eventually distributed. A sudden increase in wealth could also increase the amount of your taxable estate above the federal estate tax exemption amount, meaning that at your death, your estate may owe estate tax or more tax than it would have without the inheritance. In addition, your inheritance could unintentionally create unequal distributions among your heirs if your estate plan does not account for it.

Ultimately, when you receive an inheritance, it is a good idea to revisit whom you want to benefit from your estate and how you want them to receive their inheritance. For example, your existing plan may already provide for those most important to you, such as children or grandchildren, but you should ensure that the value of what each person receives still aligns with your wishes. With your increase in wealth, you may want to broaden the reach of those you benefit—for instance, by creating or increasing gifts to charity or establishing trusts for other loved ones. Thoughtful provisions in your estate plan can help structure distributions for less experienced beneficiaries and offer greater protection from their creditors, financial missteps, or divorcing spouses.

Preserving Your Family’s Wealth

You may have heard claims that most families lose their wealth within a few generations. Some studies estimate that 70 percent of wealthy families lose their wealth by the second generation, and 90 percent lose it by the third.^[1] However, recent research suggests that the picture is more complex: wealth can persist across generations, particularly at the top, but outcomes vary widely depending on family communication, planning, and decision-making processes. Preserving family wealth for the long term requires proactive planning and open conversations. Families often fail to discuss inheritance because money—especially inheritance—can be a taboo topic that touches on emotion, identity, and family dynamics. Older generations may also fear that younger generations will become lazy and entitled if they are made aware of their inheritance too soon, or that their private financial information will be leaked to those who should not have it.

Conversations about inheritance do not have to begin with dollar figures. They can focus first on values and the kind of legacy each generation hopes to leave. Working with a team of trusted professionals to develop shared goals and a proactive plan can help foster an environment of intergenerational trust, understanding, and fairness. This collaboration can be the difference between your collective fortune evaporating within a couple of generations and carrying on an enduring family legacy. Comprehensive estate planning can provide a solid foundation to ensure that assets are managed properly and preserved, rather than dissipated.

Seek Professional Advice

An inheritance can be quickly frittered away, but proper planning can help mitigate this risk. If you have received an inheritance—or expect to receive one in the future—seek out financial and legal advice. Estate plans should evolve as your life does, so revising your plan after receiving an inheritance can help to ensure that your wishes, tax strategy, and family goals remain aligned. Contact us at (408) 371-6000 or info@sowardslawfirm.com to explore your options for preserving your family’s legacy.

^[1] Wade Wallace, CFA, CFP®, RICP®, The Biggest Threats to Multi-Generational Family Wealth, Regency Inv. Advisors (Aug. 1, 2025), https://regencyinvests.com/the-biggest-threats-to-multi-generational-family-wealth.