How to Deposit a Large Cash Inheritance - SmartAsset (2024)

If someone close to you has died, the last thing you may want to talk about is money. However, in order to honor their final wishes, you’ll need to follow their will (if they left one) or potentially go to probate court. You may be left with a large cash inheritance when all is said and done. But, how do you deposit a large cash inheritance, and is there anything you should know before doing so?

A financial advisor can help you put an estate plan together to protect your assets for your family.

How to Deposit a Large Cash Inheritance

The best place to deposit the large cash inheritance is in a federally insured bank or credit union account. Putting the inheritance in a savings account is a good option for the short term. When the time is right, you should decide if there’s a better place for it, especially since most savings accounts don’t offer compounding interest.

How Big of a Cash Inheritance Should You Expect?

The most common cash inheritance is usually $10,000 – $50,000. That being said, there are many elements when considering what sort of cash inheritance to expect. The first thing you should ask yourself is whether you’ll receive one. Many Americans don’t. Of those who do, the amount can range drastically.

The Federal Reserve performed a survey on inheritances from 2016-2019. It found that race, education and parents’ age at the time of death greatly impact the inheritance they leave behind. And while many people may leave behind assets like stock or a house, that isn’t always easy to turn into cash.

Do You Have to Pay Taxes on a Cash Inheritance?

Usually you don’t have to pay tax on cash inheritance at the state or federal level. There are two exceptions to this:

• Six states charge inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania all levy inheritance taxes on at least some people.
• Federal and state estate taxes: Federally, if you inherit over $12.92 million in assets in 2023, you’ll have to pay estate taxes. Some states also levy estate taxes, each with their own thresholds.

What to Do With Your Inheritance

What you decide to do with your inheritance is up to you and what your financial needs are at the time. It’s best to put the money to work in a way that will benefit you and your family. Depending on the size of the inheritance, you may want to do some planning. Here are four suggestions to consider:

Take a Breath

If you’re inheriting cash, you just had a family member or someone close to you die. There’s hopefully a will, but if not you may need to go to court. You also may not be the only inheritor. Do what you can to honor the legacy and smooth the process for yourself and others. Many inheritances have been fought over, so it’s best to go into this clearheaded.

Pay Down Debt

Paying down debt with your inheritance is almost always a good idea. Credit card debt, student loans and auto loans can all have hefty interest rates. Paying these down, or off completely, can be a weight off your shoulders.

The only caveat here is if you have a mortgage with a low interest rate. While you could do worse than investing in your home, you stand to gain more by putting that money in the stock market. For example, say you’re paying 5% interest. The stock market has an average return of 10%. That means that a well-placed investment will outpace the interest owed by 5%.

Hire a Financial Advisor

If you want to make the most of a cash inheritance, it’s a good idea to hire a financial advisor. A financial advisor will take your goals into account. For instance, they can help you set up a 529 college savings plan for your kids. Or, they could direct you on funds to invest in to plan for your retirement.

Make Other Investments

Unless it’s for emergency savings, you don’t want to leave that lump sum in a savings account. It may be better put to use in other investments. For instance, you could use the cash inheritance to make a down payment on a house or renovate the home you have.

Bottom Line

You can deposit a large cash inheritance in a savings account, either through a check or direct wire to your bank. The bigger question is what you should do with it once it’s deposited. While that is ultimately your decision, it helps to have a plan. The more prepared you are before you get the inheritance. This is especially true if you’re also going through this with siblings. If possible, talk with your parents about estate planning so that when the time comes, the big decisions have already been made.

Tips for Managing a Cash Inheritance

• Take advantage of some expert advice by hiring a financial advisor. They can bring clarity to what you should do with your inheritance to meet your goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Be realistic about where you are in retirement planning. An inheritance can be a good sum to bolster your retirement account if you need it. Use our retirement calculator to see how much you’ll need.

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