How to Communicate with Beneficiaries About Their Responsibilities
Receiving an inheritance can feel like a gift, but it also comes with financial and legal responsibilities that many beneficiaries aren’t prepared for. Without guidance, it’s easy to make costly mistakes—whether it’s overspending, mismanaging assets, or facing unexpected taxes.
I’ve seen firsthand how an open and thoughtful conversation can make all the difference. One client, Lisa, inherited a sizable stock portfolio from her father. Without realizing the tax implications, she immediately sold a large portion, triggering a significant capital gains tax bill. Had she consulted a professional beforehand, she could have sold strategically over time to minimize the tax hit.
If you’re responsible for passing down wealth, taking the time to educate your beneficiaries now can set them up for long-term financial success. Here’s how to approach the conversation effectively.
1. Set the Right Tone
Inheritance conversations can be emotional—money is tied to memories, family dynamics, and future security. Instead of overwhelming beneficiaries with legal jargon, approach the discussion with care.
I once worked with David, whose parents left him a trust designed to protect the funds for his retirement. Initially, he was frustrated because he couldn’t access all the money at once. But after walking through the purpose of the trust and how it was structured to provide him financial stability for decades, he felt grateful rather than restricted.
Setting expectations early can help avoid resentment or confusion down the road.
2. Clarify What They’re Receiving
Beneficiaries often don’t realize that different assets come with different rules. It’s important they understand:
Type of assets – Cash, investments, real estate, retirement accounts, or business interests each have different implications.
Transfer process – Some assets pass through probate, while others (like life insurance and IRAs with named beneficiaries) bypass it.
Any restrictions – Trusts may have specific conditions before beneficiaries can access funds.
A client, Sarah, inherited her mother’s house and assumed she could sell it immediately. However, the house was still in probate, and she hadn’t accounted for maintenance costs during the legal process. She was caught off guard by property taxes and upkeep expenses she wasn’t financially ready for. A little preparation would have made the transition much smoother.
3. Explain Tax and Legal Implications
Beneficiaries often don’t consider tax consequences until they receive a bill. Some key points to discuss include:
Capital gains tax on inherited real estate or stocks if they sell.
Income tax on inherited retirement accounts (which may need to be withdrawn within 10 years).
Estate tax considerations (though this typically applies to high-net-worth estates).
A client, Tom, inherited an IRA from his uncle but didn’t realize the required minimum distributions (RMDs) applied. By the time he figured it out, he faced penalties for missing withdrawals. Had we spoken earlier, he could have structured withdrawals strategically and minimized taxes.
Encourage beneficiaries to talk to a financial or tax professional before making major financial moves.
4. Encourage Smart Financial Planning
Inheritances can disappear quickly if beneficiaries aren’t careful. Studies show that many people spend through their inheritance within a few years. I’ve seen this play out in real life.
Emily received $250,000 when her grandmother passed. She wanted to “treat herself” and ended up buying a luxury car, taking multiple vacations, and giving generous gifts to friends. Within two years, the money was gone, and she regretted not investing for her future.
A smarter approach? Encourage beneficiaries to:
✅ Pay off high-interest debt
✅ Invest for long-term growth
✅ Set aside emergency funds
✅ Avoid emotional purchases
Helping them see the long-term value of wealth preservation is crucial.
5. Offer Resources and Professional Guidance
Many beneficiaries simply don’t know where to start. Provide them with access to professionals who can help them make informed decisions. Established clients often seek out professional advisors but beneficiaries may not be as familiar with accessing professional guidance. Recommend they:
Meet with a financial advisor to create a plan.
Consult with an estate attorney for legal guidance.
Work with a tax professional to understand obligations.
I had a client, James, who inherited a mix of real estate, stocks, and cash. At first, he felt completely overwhelmed. By working with an advisor, he structured a plan that allowed him to keep a rental property for passive income, invest in a diversified portfolio, and set aside cash for future needs. Instead of stress, he felt empowered.
6. Revisit the Conversation as Needed
Inheritance planning isn’t a one-time discussion. Laws change, family needs evolve, and financial strategies shift. Keep the lines of communication open.
By proactively educating beneficiaries, you’re not just passing down money—you’re passing down financial wisdom. And that’s a legacy that lasts far beyond any inheritance.
Disclosure(s): The examples in this article are hypothetical and for illustrative purposes only. Securities and Advisory services offered through GWN Securities, Inc., Member FINRA/SIPC, a Registered Investment Advisor. 11440 N. Jog Road, Palm Beach Gardens, FL 33418. (561) 472-2700. LA Wealth Management and GWN Securities, Inc. are separate companies. Tax: Information provided should not be considered as tax advice from GWN Securities, Inc. or its representatives. Please consult with your tax professional. CFP®: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP® in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.