You’re getting a large inheritance – now what?
By Alterna Team
May 06, 2024

It’s been well documented that a massive wealth transfer is taking place globally, with an estimated $1 trillion in Canada alone moving to the next generation. If you’re expecting (or recently received) a sizeable inheritance, deciding what to do with it can be overwhelming.


Before acting impulsively, it’s wise to have a solid plan. After all, your loved one who generously left you this inheritance wouldn’t have wanted you to squander it. As a first step, many people will turn to a financial professional, such as an Alterna Advisor, for expert advice on managing a significant sum of money.

While formulating an inheritance strategy, try to avoid leaving the funds in a regular savings or chequing account for an extended time, earning little to no interest. A better alternative might be depositing the money into a redeemable term deposit that can earn more interest while keeping your money liquid (i.e., it’ll be readily available once you decide how you want to use it).

Here are four common, effective ways to utilize your inheritance:

  1. Pay down debt. It’s not exciting, but reducing your debt level may drastically improve your finances. From mortgages and automobile loans to credit cards and lines of credit, the more debt you carry means paying more in interest charges, particularly as current interest rates are much higher than they have been for years. The sooner you get out of debt, the faster you can build wealth. As a general rule, consider first paying off debt that incurs the highest interest rate.

  2. Invest for the future. Everyone has long-term goals, such as buying a home or enjoying retirement. Whether you choose to invest in stocks, bonds, investment funds or a combination of securities, over the long haul you have the potential to grow wealth and meet your financial objectives. Again, working with an advisor may help you invest according to your specific goals, risk tolerance and time horizon.

  3. Be tax smart. If you’re not careful, it’s easy for a large inheritance to attract significant taxes. You want to make the most of your financial gift, and part of that is managing your money tax effectively. Subject to annual contribution limits, consider allocating funds to registered vehicles like an RRSP and TFSA that can offer valuable tax benefits. If you’re a first-time homebuyer, look into the new FHSA, or if you want to save for your kids’ post-secondary education, the RESP is useful. An advisor can provide guidance on these vehicles and other ways to be tax efficient.

  4. Lend a hand to adult children. An RESP is great for funding a child’s schooling, but if your kids are older, they could be facing financial challenges as part of their everyday life. You may wish to gift some of your inheritance to adult children who may have student loans, credit card bills and mortgages to pay. If you’re still sorting through your own finances and are unsure how much of your inheritance you’ll use, consider setting aside some money you could access if required; whatever amount isn’t needed can be gifted directly to your kids/grandkids, or form part of your estate for future distribution.


More suggestions

In addition to the four ways of using your inheritance discussed above, other possibilities include building an emergency fund in case of unexpected expenses (e.g., major home repairs, job loss, serious illness), and supporting charities as part of your legacy through donations and using proven philanthropic vehicles like a trust or foundation. Of course, if you’re disciplined and focused with most of your inheritance, it’s usually fine to take a small portion and splurge or indulge as you wish. You deserve to treat yourself, too!