66% of Americans expect inheritance, but few prepare for taxes

Over the next two decades, baby boomers will pass down more than half of the country's wealth — and most heirs are not ready to manage it.

Sixty-six percent of Americans expect to receive or have already received an inheritance from their parents, yet most beneficiaries are unprepared to manage the assets, taxes, and decisions that arrive with a windfall, according to a Choice Mutual survey.

"Some of the most successful inheritances I have seen are among families who prioritize these conversations," Tony Drake, founder and CEO of Drake & Associates, said. Drake, a certified financial planner in Waukesha, Wisconsin, advises families on retirement and estate planning.

The transfer spans two decades as Americans over 55, mainly baby boomers, own more than half of the country's wealth. Cash inherited from a deceased person is not considered taxable income to the beneficiary, according to the IRS. Inherited property is not taxed at receipt in most cases, though ongoing property taxes, insurance, and maintenance apply, and capital gains tax can be triggered if the property appreciates significantly before sale.

The stakes are high: unprepared beneficiaries risk losing much of the money to poor financial decisions or avoidable taxes. The federal estate tax exemption stands at roughly $14 million per individual, but is scheduled to revert to about half that level at the end of 2025 when the 2017 tax law expires, a change that could pull more estates into the tax net.

Start the Conversation Before the Grief

One of the biggest problems with the trillions of dollars expected to change hands is not the money itself but beneficiaries being unprepared to manage the assets they receive. Discussing the plan ahead of time helps family members know exactly how much they will receive and what taxes they might expect. Beneficiaries who never discuss the inheritance before a loved one passes may end up making important decisions while grieving. Bringing the topic up early gives them time to plan before emotions take over, reducing the likelihood of impulsive spending.

A Windfall Is a Long-Term Asset, Not a Splurge

A sudden windfall tempts recipients to buy a bigger house, a more expensive car, or an extravagant vacation. Those dream items carry ongoing costs — taxes, insurance, and maintenance — that persist long after the initial purchase. Treating the inheritance as a long-term investment rather than a one-time splurge helps provide financial security for years. Paying down debt or building an emergency fund delivers more lasting value than an asset that will eventually depreciate.

Taxes Depend on What You Inherit

The tax treatment of an inheritance varies by asset type and location. Cash passed down from a deceased person is not considered taxable income to the beneficiary, according to the IRS. Inherited property is not taxed at receipt in most cases, but how you use it determines which deductions apply: ongoing property taxes, insurance, and maintenance costs; capital gains tax if the property value rises significantly before sale; and whether personal, investment, or rental use changes the deductions you can take. Most people do not fully understand which processes are triggered when estates are handed down, so working with a financial professional before signing anything is important. Tax rules change, so verify the latest figures against official IRS announcements before making decisions.

Build a Team Before You Need It

A large inheritance can be life-changing and overwhelming, presenting financial decisions recipients have never navigated. A trusted financial adviser, tax professional, or estate attorney can help everyone involved avoid costly mistakes and create strategies aligned with their goals. Surrounding yourself with the right people can be the difference between enjoying an inheritance and watching it disappear.

The Great Wealth Transfer is not reserved for the wealthy — 66 percent of Americans are touched by it. Families that plan ahead, avoid impulsive spending, understand the tax treatment, and assemble a professional team are far more likely to preserve the wealth for the next generation. With the federal estate tax exemption scheduled to shrink at the end of 2025, the window to plan is narrowing.

This article is for informational purposes only and does not constitute investment advice.