What to Do When You Inherit Money: The Rules, the Risks, and the Right Moves
Episode Description
Inheriting money should feel like good news — and it often is. But the moments surrounding an inheritance are rarely straightforward. There’s grief. There’s urgency. There’s a sudden responsibility for assets you didn’t plan for, invested in ways not designed for your situation. In this episode, Tom Dupree and Lead Advisor Mike Johnson walk through what actually happens when wealth transfers from one generation to the next — and what to do about it.
The conversation covers the full spectrum of inherited assets: taxable investment accounts with stepped-up cost basis, life insurance proceeds, annuities with embedded tax liabilities, and the increasingly complicated world of inherited IRAs. Tom and Mike explain how the SECURE Act of 2019 effectively ended the stretch IRA, what the 10-year rule now requires of most non-spouse beneficiaries, and why failing to plan around required annual distributions can trigger a decade of preventable tax consequences.
The episode also covers practical strategies for current asset owners — how to use appreciated stock gifts to rebalance efficiently, when to let a legacy holding ride to pass a stepped-up basis to heirs, and why having all parties (investment advisor, CPA, and attorney) on the same page before a transfer happens makes everything smoother.
Knowing what you own and why you own it isn’t just good advice for volatile markets — it’s the foundation of a plan your heirs can actually build on.
Topics Covered
- The gray wave: why trillions in wealth are changing hands over the next 15 years
- The 90-day rule: why pausing before making any major financial move protects you
- Stepped-up cost basis on inherited taxable accounts — how it works and why it matters
- Tax treatment differences between inherited IRAs, annuities, and life insurance proceeds
- The SECURE Act’s 10-year rule for inherited IRAs and required annual distributions
- Exceptions to the 10-year rule: spouses, minor children, disabled beneficiaries, and siblings within 10 years
- Using inherited IRA withdrawals to fund Roth conversions on your own accounts
- Gifting appreciated stock to charity as a tax-efficient rebalancing strategy
- Why beneficiary designations and estate coordination require regular review
- How Dupree Financial Group coordinates with CPAs and attorneys to quarterback inheritance planning
Key Takeaways
- Pause before you act. An inheritance often arrives during an emotionally charged time. Waiting 90 days before making any major gifting, investment, or debt payoff decisions keeps emotion out of choices with long-term consequences.
- Not all inherited assets are taxed the same. Taxable investment accounts typically receive a stepped-up cost basis — wiping out embedded capital gains for the beneficiary. Life insurance proceeds are generally income-tax-free. Annuities and inherited IRAs carry ordinary income tax obligations. Knowing the vehicle determines the strategy.
- The stretch IRA is gone. The SECURE Act of 2019 eliminated the ability for most non-spouse beneficiaries to stretch inherited IRA distributions over their lifetime. A 10-year withdrawal window now applies, with required annual distributions each year — not just a lump sum in year ten.
- A withdrawal plan for an inherited IRA is not optional. The IRS requires distributions each year over the 10-year period. Without a coordinated strategy, beneficiaries can face unexpected income spikes, higher tax brackets, and lost reinvestment opportunities.
- Gifting appreciated stock beats gifting cash. If you plan to give to charity anyway, donating appreciated shares instead of writing a check eliminates the capital gain for you, produces no tax consequence for the charity, and frees up cash to repurchase the same investment at a higher cost basis.
- Beneficiary designations are the most overlooked planning tool. Outdated or missing designations create probate complications and can override your wishes entirely. Regular reviews — coordinated across investment accounts, retirement plans, and insurance — are essential.
- Coordination between advisors prevents costly mistakes. Inheritance planning sits at the intersection of investments, taxes, and legal structure. Having your financial advisor, CPA, and attorney aligned — not working in silos — is the difference between a smooth transition and a decade of cleanup.
- The income approach applies to inherited assets, too. Inherited portfolios that aren’t generating income need to be repositioned around your actual retirement cash flow needs. A growth-oriented portfolio you’ve inherited wasn’t built for your life — it needs to be evaluated in the context of your plan.
About The Tom Dupree Show
The Tom Dupree Show is hosted by Tom Dupree, founder of Dupree Financial Group and a 47-year veteran of the investment business. Each episode covers the financial topics that matter most to retirees and those approaching retirement — in plain English, without the Wall Street spin.
Dupree Financial Group is a fee-only, fiduciary Registered Investment Advisory firm based in Lexington, Kentucky. The firm manages separately managed accounts focused on income-generating, dividend-paying portfolios — no products sold, no commissions, no conflicts of interest.
Past episodes are available at dupreefinancial.com under the Radio tab.
If you’re not sure whether your portfolio is set up to generate income — whether you’ve recently inherited assets or simply want to know what you own and why you own it — we’ll take a look. No charge. No pressure. Just an honest conversation about what you own and whether it’s working for you.