I Just Inherited Money in Canada. What Are the First 5 Things I Should Do?

Receiving an inheritance is a profound life event, often wrapped in the grief of losing a loved one. Amid the emotional turmoil, you're suddenly faced with significant financial decisions that can shape the rest of your life. It's a moment that calls for care, deliberation, and a clear head.

If you just inherited money, the first and most important thing to do is pause. Avoid making any sudden financial decisions for a 'cooling-off' period. This money represents a legacy, and the best way to honour it is with thoughtful planning, not rash action.

As a financial advisor in Kelowna who specializes in helping families with inheritances, I've guided many clients through this exact process. The key is to take it one step at a time.

Here are the first five things you should do to navigate your inheritance wisely.

Step 1: Pause and Breathe

Your first instinct might be to quit your job, buy a new house, or book a trip around the world. Resist that urge. Grieving and major financial decisions do not mix well. Give yourself a mandatory “cooling-off” period of at least three to six months.

During this time:

• Don’t make any major purchases or investments.

• Don’t quit your job or make irreversible career changes.

• Don’t broadcast the news widely.

Use this time to process your emotions and let the initial shock or excitement settle. Park the money in a safe, high-interest savings account where it’s accessible but not co-mingled with your daily chequing account. This creates a clear boundary, makes the funds easy to track, and protects the money while you formulate a plan. Crucially, keeping the funds separate is also a critical step to protect the inheritance as personal property in the event of a marital breakup.

This simple act of waiting is the most powerful financial move you can make right now.

Step 2: Take Inventory of the Inheritance

Before you can make a plan, you need to know exactly what you’re working with. An inheritance rarely arrives as a single cheque. You need to work with the executor of the estate to get a clear picture of all the assets.

This inventory should include:

• Cash: Bank accounts, GICs, etc.

• Investments: Stocks, bonds, and mutual funds in non-registered accounts.

• Registered Accounts: Such as RRSPs, RRIFs, or TFSAs, which have specific tax implications and rollover rules.

• Real Estate: A primary residence, cottage, or investment property.

• Life Insurance Proceeds: These are typically paid directly to the beneficiary tax-free.

• Other Assets: Valuables, business shares, etc.

Understanding the components is critical, as a $500,000 cash inheritance is treated very differently from a $500,000 RRSP inheritance from a tax perspective.

Step 3: Build Your Professional Team

You don’t have to—and shouldn't—navigate this alone. A windfall of this size comes with complexities that require professional expertise. Your team should ideally include:

• A Financial Advisor: To help you see the big picture, create a long-term financial plan, and build an investment strategy that aligns with your life goals.

• An Accountant: To manage the tax implications. They can help you understand capital gains, taxes due from the estate, and how to structure your new assets tax-efficiently.

• A Lawyer: To help you understand the will, any trusts, and the legal aspects of the estate settlement process.

These professionals have experience in areas you likely don't. Their fees are an investment in protecting and growing your inheritance for the long term.

Step 4: Understand the Tax Implications

A common question is whether you have to pay tax on an inheritance. While Canada does not have a formal "inheritance tax," that doesn't mean the money is completely tax-free. The estate itself may have to pay taxes on capital gains or income. Furthermore, if you inherit a registered account like an RRSP or RRIF, the value of that account is generally considered income for the deceased and taxed on their final return, unless it can be rolled over to a spouse or dependent. Understanding these nuances is critical for effective planning.

Step 5: Create a Comprehensive Financial Plan

With your team in place and a clear inventory, it’s time to build a roadmap. This isn’t just about investing; it's about defining what you want this money to do for you. A good financial plan will help you answer crucial questions:

• What are my immediate, medium, and long-term goals?

• Should I pay off my mortgage or other debts?

• How much should I set aside for retirement?

• Do I need to build or bolster my emergency fund?

• Do I want to help my children with their education?

• How much can I afford to spend, and on what?

An inheritance is an opportunity to achieve financial security. A plan turns that opportunity into a reality, ensuring the money is used purposefully to enhance your life, not just complicate it.

Your Path Forward

Navigating an inheritance is a journey, not a race. By following these steps, you can turn a potentially stressful event into a foundation for long-term financial security and peace of mind.

If you have more questions or are unsure where to begin, you can get instant, confidential answers from our AI assistant, Ask Georgia.

When you're ready to create a comprehensive plan with a trusted professional, schedule a no-obligation consultation with us at ProsperWise Advisors. We're here to help you move forward with confidence.

Frequently Asked Questions (FAQ)

Q: Do I have to pay inheritance tax in Canada?

A: No, Canada does not have a specific inheritance tax. However, the estate of the deceased may have to pay a final income tax bill, and taxes may be applicable on certain assets you inherit, such as capital gains on property or the value of registered retirement accounts.

Q: How do I find the right financial advisor for an inheritance?

A: Look for a financial advisor who holds relevant designations (like a CFP or CLU) and explicitly states they have experience working with clients who have received an inheritance or "sudden wealth." Ask them about their process for handling these situations during your initial consultation. It's crucial to find someone who understands both the technical aspects and the emotional complexities involved.