I’ve Inherited a Lump Sum; What Should I Do Now?

Inheriting money is rarely just about the money

It often arrives at a time of grief, change, or family tension. You might feel guilty spending it, worried about “doing the right thing”, or quietly scared you’ll waste an opportunity your parents or relatives worked hard to create. If that’s you, you’re not alone. And the good news is: you don’t need to get everything right straight away.

This article walks you through a calm, practical way to handle a lump sum so it genuinely improves your life, rather than just sitting in a low-interest account or disappearing without you quite knowing where it went.

Take a breath and buy yourself time

The first rule of inheriting money: you don’t have to rush.

When emotions are running high, it’s easy to make big decisions you later regret – paying off the wrong debt, giving away too much, or being sold something that’s not in your best interests.

A simple starting point:

• Park the money somewhere safe: A cash account with proper protection (for example, within FSCS limits) is fine as a temporary home.

• Give yourself a decision-free window: That might be three months, six months, or even a year. The point is to let the dust settle before you lock into anything long-term.

Doing nothing permanently is a problem. Doing nothing for a while, deliberately, is often wise.

Decide what “a good life” looks like now

Before you decide what to do with the money, it helps to be clear what you want your life to look like.

For many people in their 40s, 50s or 60s, an inheritance raises questions like:

• Could I work less or change to a less stressful role?

• Can I retire earlier and still be comfortable?

• How much can I help the kids with house deposits, school fees or university?

• Is there anything I’d regret not doing – travel, experiences, home improvements?

This is where a simple financial plan is powerful.

Rather than thinking, “Should I put this into a pension or an ISA?” we start with, “What do you want life to look like in 5, 10, 20 years?” The money is then arranged around those answers.

Fix the foundations first

An inheritance is a chance to quietly remove a lot of future stress. Before worrying about investment markets, it’s usually sensible to:

1. Build or top up an emergency fund

   • Aim for at least 3–6 months of essential spending (sometimes more, depending on your situation).

   • This gives you breathing space if life throws a curveball – job loss, illness, big repairs.

2. Clear bad debt

   • High-interest credit cards, overdrafts, and personal loans.

   • Clearing these can give you a guaranteed return (you’re no longer paying that interest) and often a huge psychological boost.

3. Check your protection

   • Life cover, income protection, and wills/lasting powers of attorney.

   • There’s not much point investing tens of thousands if your family would be exposed if something happened to you.

These steps aren’t glamorous, but they turn a lump sum into security, not just a bigger bank balance.

Use planning (not guesswork) to make the big choices

Once the basics are in place, you’ll normally face a mix of decisions like:

• Should I pay off some or all of the mortgage?

• How much should go into pensions, ISAs, and non-ISA investments?

• How much can I afford to gift to children or grandchildren now?

• What does it mean for my retirement age and lifestyle?

At PWS, we use cashflow modelling to answer questions like these in plain English. In practice, that means we can sit down together and “rehearse” different futures on screen:

• What if you put £X into pensions, £Y into ISAs and keep £Z in cash?

• What if you retire at 60 instead of 67?

• What if you gift £50,000 to each child now – how does that affect your own long-term security?

Seeing the numbers mapped out over time is often where the anxiety starts to fall away. You can see, clearly, what you can and can’t afford – and design a plan that balances future freedom with enjoying life now.

Make the most of tax allowances and wrappers

The type of inheritance you’ve received matters. You might have inherited:

• Cash or investments held in someone else’s name

• Property (or a share of one)

• Pensions (a SIPP or workplace scheme)

• A mix of the above

Each is treated differently for income tax, capital gains tax and inheritance tax. Broadly:

• ISAs are tax-efficient for building flexible, accessible pots.

• Pensions can be extremely powerful for long-term retirement planning and estate planning.

• Gifting can help reduce future inheritance tax, but you need to understand the rules and timescales.

You don’t need to become a tax expert – that’s our job – but you do want a joined-up approach.

The key is to think in terms of “money buckets”:

• A security bucket (cash and near-cash)

• A freedom bucket (pensions and investments for the future you)

• A joy bucket (holidays, experiences, home improvements)

• A giving bucket (support for family, charitable giving)

We then use the right tax wrappers and investment approach inside each bucket, so the money works efficiently without becoming complicated for you to manage.

Emotions, family and “fairness”

Money and family are rarely simple. Inheritances can stir up:

• Guilt about spending “mum and dad’s money”

• Tension between siblings with different views on what’s “fair”

• Differences between you and your partner about how generous to be with children

Part of good planning is giving you a safe, neutral space to talk through these issues. Our job isn’t to tell you how to feel; it’s to:

• Help you separate the numbers from the noise

• Show you what’s actually possible

• Support you in making decisions you’ll feel comfortable with in 5, 10, 20 years

Sometimes that means giving you “permission” to enjoy some of the money. Your parents may have wanted exactly that.

How we help at PWS

If you’ve inherited money and you’re not sure what to do next, here’s how we typically work with clients:

1. Understanding meeting

   • We talk about the inheritance, your current situation and what you’d like life to look like.

   • No jargon, no products – just understanding and questions.

2. Planning and modelling

   • We build a detailed picture of your finances and use cashflow modelling to test different options.

   • The aim is a clear, written plan that shows what to do with the lump sum and why.

3. Implementation and ongoing support

   • We help set up accounts, investments and any protection or estate-planning steps.

   • Then we review things with you regularly as life inevitably changes.

You don’t have to have everything figured out before you speak to us. That’s the whole point of advice.

If you’ve recently inherited money and would like a calm, structured conversation about how to use it well, we’d be happy to talk. If you need advice, we’re here to help. Schedule a free, no-obligation chat here. A guide on selecting a financial advisor is also available here.