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Did you just receive a large financial windfall or a modest sum as an inheritance? 

Receiving an inheritance is a special opportunity to secure your financial future. But without a plan, it can quickly disappear. If you take the right steps, you can transform your inheritance into a lasting legacy for yourself and your loved ones. 

In this guide, we’ll discuss immediate and long-term strategies for investing inheritance money in Canada and securing your financial future today.

What’s the first thing you should do when you receive an inheritance?

It's natural to feel overwhelmed when receiving an inheritance, especially if it’s unexpected. 

But following a few simple steps can help you make decisions with confidence.

1. Take it slow

After the loss of a loved one, it’s normal to feel grief, confusion, stress, or other emotions. 

Give yourself time to grieve and avoid hasty financial decisions during this emotional time. 

While you start reflecting on your needs and goals, you could put any cash inheritances into a high-interest savings account or GIC. 

Trying for a more calm, deliberate approach can help you create a more thoughtful plan.

2. Assess your financial situation

Begin by taking stock of your finances. 

Think about things like:

• High-interest debts including credit cards, student debts or car loans.
• Existing savings or investments, like a tax-free savings account (TFSA) or RESP.
• Immediate financial goals, like saving for a down payment on a home or planning for retirement.

Since your financial situation might be changing in a big way, it’s important to make sure your will is up to date. If you don’t have a will, you can easily create one online. ÐßÐßÊÓƵ makes creating a will simple and affordable, with free unlimited updates as your life evolves and your wishes change. 

3. Create an emergency fund

An emergency fund is money set aside for unexpected expenses. Ideally, it should cover 3–6 months of living costs.

Common practice is to store your fund in a high-interest savings account so it can grow, but you can also easily access it if you ever need it. 

An inheritance may give you the perfect opportunity to make or top up your emergency fund so you’re more protected for whatever the future may hold.

4. Pay off high-interest debts

If you have debts you can pay off, it’s time to do so. 

Clearing high-interest debts, such as those on credit card balances or personal loans, is one of the smartest ways to use inheritance money. 

Settling your debts gives you peace of mind, and frees up future cash you would otherwise be using for interest payments. It also helps you improve your credit scores and financial stability.

How should you invest inheritance money in Canada?

Once you've addressed your immediate financial needs, it's time to focus on investment strategies to help you grow your inheritance.

Understand your investment options

Canadians can take advantage of a wide range of investment opportunities. Common investments include:

• Stocks and mutual funds for long-term growth.
• Bonds and exchange-traded funds (ETFs) for stability.
• A registered retirement savings plan (RRSP) or a registered education savings plan (RESP) for tax-sheltered growth and preparation for your family’s future.

How do I invest a large sum of inherited money?

Based on your financial goals and risk tolerance, try to diversify your cash inheritance as investments in stocks, bonds, mutual funds, and tax-sheltered accounts.

You may want to consult a financial advisor to determine what types of investments best suit your situation.

Where is the safest place to put inheritance money?

Speak with an advisor to get the best advice for your specific situation.

In general, if you’re focused on protection and not growth, you may want to put your inheritance money in a safe deposit box at your bank or in a solely owned chequing account. 

If you’re also interested in growth, a high-interest savings account is likely one of the lowest-risk options for both protecting and growing your inheritance money. 

However different financial institutions offer different interest rates, and they’re often limited for growth. 

Another option is a TFSA, which can also protect your money while helping it grow. Whether you’re investing on your own or using a managed investing account, you can tailor your investment strategies to be more or less balanced, depending on your risk tolerance. 

Diversify your investment portfolio

Investment diversification is an important part of managing risk if you’re investing your inheritance. , a balanced portfolio can look like many things. One type of balanced portfolio might include:

• 50% stocks or ETFs for growth.
• 25% bonds for stability.
• 25% alternative investments like real estate or private equity.

Depending on your own experience with investing, you may want to get in touch with an investment or financial advisor who can help you fine-tune your asset allocation based on your risk tolerance and short and long-term financial goals.

Use tax-sheltered accounts

Canada's tax-sheltered accounts are powerful tools for protecting your inheritance from taxes. Here’s a breakdown of different types of tax-sheltered accounts and how they work in Canada.

Tax-Free Savings Account (TFSA)

• How it works: Contributions to a TFSA are made with after-tax income, but any growth in your contributions (interest, dividends, or capital gains) and withdrawals are tax-free. The amount you can invest in your TFSA is limited by your available .
• Best for: Short to mid-term savings goals or investments where you want the flexibility to withdraw funds without tax penalties.

Registered Retirement Savings Plan (RRSP)

• How it works: This is your retirement account. Contributions to an RRSP are tax-deductible, meaning they reduce your taxable income in the year you contribute. However, withdrawals are taxed as income when you access the funds, usually in retirement when your income may be lower.
• Best for: Long-term retirement savings.

Registered Education Savings Plan (RESP)

• How it works: Contributions to an RESP are not tax-deductible, but any growth in your investments inside the account is tax-free. When withdrawn for educational purposes, the funds are taxed at the RESP beneficiary’s rate, which is often low.
• Best for: Saving for a child’s post-secondary education.

Here's how to account for RESPs in your will →

First Home Savings Account (FHSA)

• How it works: A FHSA combines the features of a TFSA and an RRSP. Contributions are tax-deductible, and withdrawals (including growth) are tax-free when used to buy a first home.
• Best for: First-time homebuyers.

What should you not do with an inheritance?

After receiving a large inheritance, try to avoid making large or impulsive purchases, such as buying luxury cars, properties or other assets, since it can be easy to overestimate your inheritance, or underestimate how quickly purchases add up. 

Take it slow and create a smart financial plan. 

Planning for the future

Creating a thoughtful inheritance strategy means thinking beyond your immediate financial goals. 

Once you’ve evaluated your financial situation and investment options, it’s time to prepare for the long term.

Setting financial goals

What are your short-term and long-term financial goals? Your goals may include things like:

• Saving up for a car
• Paying off debts
• Planning a dream vacation
• Health and wellness expenses
• Making a down payment on a home
• Funding your child’s post-secondary education through an RESP
• Pursuing additional education
• Saving for retirement

Goals help prioritize your financial decisions and make sure your existing assets and inheritance are used in a way that works towards those goals rather than against them. 

Other options you may want to consider

Inheritance money can also be used for:

• Helping your children or loved ones with their education costs or housing expenses.
• Donating to charity to honour the legacy of your loved one.
• Treating yourself to a small indulgence, as long as it aligns with your overall investment plan and financial goals.
• Protecting yourself, your assets, and your loved ones with powers of attorney (POA) documents and a legal will.

What you need to know about creating or updating your estate plan

After receiving an inheritance and making some changes to your investments, it’s a good idea to create a will or update your existing one as soon as possible.

What happens if you don’t have a will

If you pass away without a will, this means that:

• Your estate will have to go through probate

• The government will decide who becomes guardian of your dependant children and who will administer your estate
• A governmental formula will dictate who automatically inherits your assets, which may ignore your common law partner if you have one
• Your family will decide what happens to your pets if you have any
• A portion of your assets will likely be used to cover probate fees
• Your estate may take longer to be distributed because the estate administrator will not have your documented wishes about your funeral, your estate distribution, or where all your assets are

What happens if you don’t have power of attorney documents

Power of attorney documents ensure that someone you trust can make decisions for you if you’re ever unable to make them yourself due to incapacity.

Your appointed attorney for personal care can make decisions about your medical and personal care for you based on the wishes you’ve outlined in your POA documents.

Your appointed attorney for property can make decisions about your financial assets and property based on what you’ve outlined in your POA documents. 

These two roles can be assigned to separate people or the same person. If you have not appointed attorneys through POA documents, your substitute decision-maker is determined based on a government formula. 

Usually, your spouse or next of kin will take on this role. However, by documenting your wishes, you’ll equip your decision-maker to act on your behalf as quickly as possible.  

Plan to take control of your future and protect your loved ones

Creating an investment plan for your inheritance can help protect and grow it into something that can help you achieve your short and long-term financial goals. 

Making an estate plan helps you protect yourself and your loved ones.

A will lets you decide who will be your executor and distribute your estate, who will be the guardian of your children, who will inherit your assets, and who will look after your pets. You can also document your funeral and burial wishes. And it’s never been easier to get started.