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Inheriting money or investment assets from a loved one often brings a complex mix of emotions. On one hand, there’s gratitude and an acknowledgment that someone cared enough about you to leave behind a financial legacy. On the other, there is an unspoken pressure to preserve what was left behind. It’s almost as if spending even a penny or making any changes would somehow dishonor the person’s memory.
This hesitation is especially common with investments such as stocks, mutual funds, and rental real estate. And even when a person inherits an asset that does not make financial sense to hold onto long-term, they feel it would be wrong to sell or adjust what their parent or loved one thoughtfully built over decades.
The reluctance to make any changes is often the result of an emotional bond and has little to do with making a financial decision. Inherited assets can feel like a tangible link to the person who passed away, and selling or altering them may feel like erasing that connection. But it is important to recognize that your loved one left these assets behind to benefit you, not as a burden.
It can be helpful to consider how converting some of your inheritance into cash might better serve your financial future. If carrying high-interest debt, for instance, selling a portion of the investments you’ve inherited to pay it off could provide a greater financial benefit than holding onto them and continuing to accrue interest on the debt.
The same goes for funding major life expenses, whether it involves helping your children through college, putting a down payment on a new home, or even catching up on your own retirement savings. These are all meaningful ways to use an inheritance to help enhance your own financial security.
If you are hesitant to make changes, one approach is to start small. For example, rather than outright selling an inherited property, converting the home into a rental for a few years could be a great step towards building your own long-term strategy.
Another important financial consideration when inheriting assets is the “step-up” in cost basis, which can significantly impact taxes when you decide to sell. When you inherit an asset—whether it’s a stock portfolio, a piece of real estate, or another type of investment—its cost basis is adjusted to its fair market value as of the original owner’s date of death.
This means that any gains that accumulated during your loved one’s life essentially disappear for tax purposes. For example, if your parent purchased a stock decades ago for $10 per share and it grew to $100 per share at the time of their passing, your new cost basis would be $100 per share. If sold immediately at that price, there’s no taxable gain. But if you hold onto the stock for another 20 years and it appreciates to $250 per share, the additional $150 gain beyond that stepped-up basis will be taxable when you eventually sell.
For those who choose to keep an inherited asset long term, maintaining accurate records is critical. Since your cost basis resets on the date of death, you need to document what that value was, as it determines how much capital gains tax you will owe in the future.
This is especially important if you inherit real estate or individual stocks that may not have a financial institution tracking the cost basis for you. If you eventually sell the asset years later, not having a clear record of the stepped-up basis could result in you owing unnecessary taxes.
Many parents never discuss what should happen to their investments after they are gone, leaving their children to grapple with guilt and uncertainty. One of the greatest gifts parents can give their children in advance regarding assets is the decision to make changes when they eventually inherit them. A simple conversation can be incredibly freeing since many inheritors struggle with guilt over selling or reallocating assets considering they may not be sure what their loved ones would have wanted.
That said, as the inheritor, it is important to consider that the person who left you these assets was likely in a different stage of life with financial priorities other than your own. What made sense for them may not make sense for you. And making thoughtful changes is not a sign of disrespect; it is a way to ensure that the financial legacy they left you continues to serve a real purpose for generations to come.
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