What to Do with an Inheritance in Ontario: A Step-by-Step Guide

Inheriting Money Is Not Just a Financial Event

Most of the people who sit down in my office in London, Ontario after receiving an inheritance are not celebrating. They are grieving. They have lost a parent, a spouse, an aunt or uncle who meant the world to them. And now, on top of everything else, they have a large sum of money they did not plan for and do not know what to do with.

I want to start there because it matters. The emotional side of an inheritance shapes the financial decisions you make, and ignoring that reality leads to mistakes. I have seen people rush into investments they did not understand. I have seen people give away large portions before understanding their own needs. I have seen people leave six figures sitting in a chequing account for three years because making a decision felt like closing a chapter they were not ready to close.

None of those reactions are wrong. But all of them can be improved with a clear process. That is what this guide is: a step-by-step approach to handling an inheritance in Ontario that respects both the emotional weight and the financial opportunity.

Step 1: Do Not Rush

This is the most important step and the one people want to skip. You have just received $100,000, $300,000, maybe $500,000 or more. The urge to do something with it immediately is strong. Friends and family have opinions. Your bank will call. You will see ads for investment products that seem perfect.

Ignore all of it for now.

Park the money somewhere safe and accessible. A high-interest savings account or a short-term GIC at a major Canadian bank or credit union will pay you somewhere around 3 to 4 percent while you take your time. That is not exciting, but it is safe, liquid, and covered by CDIC insurance up to $100,000 per eligible deposit category. For a detailed look at when GICs make sense versus investing for growth, see our GIC vs. investing guide.

Give yourself at least 30 to 90 days before making any major financial decisions. There is no penalty for waiting. There is significant risk in acting too quickly. The money is not going anywhere, and the opportunity cost of earning 3.5 percent instead of 7 percent for a few months is negligible compared to the cost of making a decision you regret.

Step 2: Understand the Tax Situation in Canada

Here is the good news: Canada does not have an inheritance tax. If your parent leaves you $400,000 in cash, you do not owe any tax on receiving that money. This surprises a lot of people, especially those who are familiar with the American estate tax system.

But there is a catch, and it is important to understand.

Deemed Disposition on Death

When someone dies in Canada, the CRA treats them as if they sold all of their assets at fair market value immediately before death. This is called a deemed disposition. The tax bill from this deemed disposition is paid by the estate, not by the beneficiaries.

What this means in practice:

• Cash and GICs: No tax consequences for you as the beneficiary. The estate pays any tax owed on interest earned up to the date of death.
• Non-registered investments (stocks, mutual funds, ETFs): The estate pays capital gains tax on any unrealized gains. You receive the investments at their fair market value on the date of death, which becomes your new adjusted cost base.
• RRSPs and RRIFs: The full value of the RRSP or RRIF is included in the deceased's final tax return as income, unless it rolls over to a surviving spouse. This can create a significant tax bill for the estate.
• Principal residence: Generally exempt from capital gains tax under the principal residence exemption, but only one property can qualify.
• Life insurance proceeds: Completely tax-free to the named beneficiary. If you receive $500,000 from a life insurance policy, you keep all $500,000.

What You Need to Watch For

If you inherit non-registered investments that have been transferred to you, your adjusted cost base is the fair market value at the date of death. Any future gains above that amount will be taxable to you when you sell. Keep careful records of these values.

If you inherit a property that was not the deceased's principal residence, such as a cottage or rental property, there may be capital gains tax implications both for the estate and for you going forward.

For complex estates, working with both a tax professional and a financial advisor is essential. The tax planning decisions made in the months after someone dies can save or cost tens of thousands of dollars.

Step 3: Get a Complete Picture of Your Own Finances

Before deciding what to do with an inheritance, you need to know exactly where you stand financially right now. This is not the time to guess. Sit down and document:

• Your total debts: Mortgage balance, car loans, lines of credit, credit cards, student loans. Note the interest rate on each.
• Your registered account room: How much RRSP contribution room do you have? Check your most recent Notice of Assessment from the CRA. How much TFSA room is available? The cumulative TFSA limit for someone who was 18 or older in 2009 and has been a Canadian resident since is $102,000 as of 2026.
• Your current savings and investments: What do you already have, and where is it held?
• Your income and cash flow: Are you comfortable month to month, or are you running tight?
• Your insurance coverage: Is your family properly protected? This is often overlooked.
• Your estate plan: Do you have a will? Powers of attorney? If someone just left you a significant inheritance, it is a clear reminder that your own estate plan needs to be in order.

This inventory tells you where the inheritance can do the most good.

Step 4: Pay Off High-Interest Debt

If you are carrying credit card balances at 19 to 22 percent, a personal line of credit at 8 to 10 percent, or a car loan at 7 percent or higher, paying those off with inheritance money is almost always the right first move.

There is no investment that reliably returns 20 percent per year. Paying off a credit card charging 20 percent is a guaranteed, risk-free, after-tax 20 percent return. It is the best financial decision available to you.

For a concrete example: if you have $25,000 in credit card debt at 20 percent interest, you are paying roughly $5,000 per year in interest alone. Eliminating that debt instantly frees up $5,000 of annual cash flow and gives you an immediate guaranteed return.

What About the Mortgage?

The mortgage question is more nuanced. If your mortgage rate is 5 percent and you could reasonably earn 6 to 7 percent investing over the long term, the math does not clearly favour paying off the mortgage early. But if paying off your mortgage would give you peace of mind and eliminate your largest monthly expense, there is real value in that.

For a detailed breakdown of this specific decision, read our guide on mortgage payoff versus investing in Ontario. The right answer depends on your mortgage rate, your tax bracket, your risk tolerance, and your time horizon.

Step 5: Maximize Your Registered Accounts

After high-interest debt is cleared, the next priority is filling up your tax-advantaged registered accounts. This is where an inheritance can accelerate your financial position by years or even decades.

TFSA

The TFSA is often the best home for inheritance money, especially if you have unused contribution room. Money inside a TFSA grows completely tax-free, and withdrawals are tax-free. There are no income attribution issues, no clawback implications, and no impact on government benefits like OAS or GIS.

If you have $102,000 of unused TFSA room and your spouse has the same, that is up to $204,000 you can shelter from tax permanently. On a $204,000 TFSA balance earning 6 percent annually, you are looking at roughly $12,000 per year in tax-free growth. Over 20 years, that compounds to over $450,000 in tax-free wealth.

RRSP

RRSP contributions give you an immediate tax deduction at your marginal rate. If you are in the 29.65 percent combined marginal bracket in Ontario (income between roughly $55,867 and $111,733), a $30,000 RRSP contribution saves you approximately $8,895 in tax.

However, RRSP contributions are not always the right choice. If you expect to be in a higher tax bracket when you withdraw than when you contribute, the RRSP can actually cost you money. And if you are close to retirement with a large RRSP already, adding more could create problems with OAS clawbacks and higher tax rates on RRIF withdrawals later.

For a thorough comparison of where to direct your money first, our RRSP vs. TFSA guide walks through the decision in detail.

Spousal RRSP

If there is a significant income difference between you and your spouse, contributing to a spousal RRSP with inheritance money can be a powerful income-splitting strategy for retirement. The higher-income spouse gets the tax deduction now, and the lower-income spouse withdraws the funds in retirement at a lower tax rate.

Step 6: Invest the Remainder Wisely

Once you have cleared high-interest debt and maximized your registered account contributions, you may still have a substantial amount left to invest in a non-registered (taxable) account. This is where the investment approach matters.

Lump Sum vs. Dollar-Cost Averaging

You have $200,000 to invest. Do you put it all in the market today, or spread it out over 6 to 12 months?

The academic research is clear: lump-sum investing outperforms dollar-cost averaging roughly two-thirds of the time. Markets tend to go up over time, so having your money invested sooner gives it more time to grow.

But the research also shows that the one-third of the time dollar-cost averaging wins, it tends to be during market downturns, which is exactly the scenario that terrifies people who just received a large sum. If you invest $200,000 on a Monday and the market drops 15 percent by Friday, you are staring at a $30,000 paper loss. That is a brutal experience, especially with inherited money that carries emotional weight.

A reasonable middle ground: invest a significant portion immediately (say 40 to 60 percent) and deploy the remainder over the next 3 to 6 months in regular intervals. You capture most of the statistical advantage of lump-sum investing while reducing the psychological risk of terrible timing.

What to Invest In

This guide is not going to recommend specific investments because the right portfolio depends on your age, risk tolerance, time horizon, income needs, and existing holdings. But I will say this: if you are paying more than 1 percent in annual investment fees, a portion of your inheritance is being quietly consumed every year.

On a $300,000 portfolio, the difference between paying 2.2 percent in fees (common with big bank mutual funds) and 0.5 percent (typical of a well-structured portfolio) is roughly $5,100 per year. Over 25 years, that fee difference compounds to over $200,000 in lost wealth. Our breakdown of how investment fees erode your retirement shows the full math.

For a personalized investment strategy that accounts for your full financial picture, our investment management approach is built around keeping costs low and returns aligned with your actual goals.

Step 7: Consider the Bigger Picture

An inheritance is often the trigger that makes people finally address the financial planning they have been putting off. If that describes you, use this moment.

Questions Worth Answering Now

• Am I on track for retirement? A $300,000 inheritance might feel like a lot, but if you are 50 years old with $100,000 saved and hoping to retire at 60, it changes your trajectory without necessarily solving the problem.
• Is my family protected? Do you have adequate life insurance? Disability insurance? A valid will? An inheritance is a reminder that these things matter.
• Am I being tax-efficient? The way you structure your investments across registered and non-registered accounts has a massive impact on how much you keep. Tax planning is not optional at this level.
• What do I actually want? Some people want to retire early. Some want to fund their children's education. Some want to buy a cottage. Some want to travel now rather than save every dollar. There is no universal right answer. The right answer is the one that reflects your values and your goals.

Setting Aside a Portion for Enjoyment

I always tell clients that it is okay to enjoy some of an inheritance. If you receive $300,000 and want to spend $15,000 on a family trip, a home renovation, or something meaningful to you, do it. That is 5 percent of the total. It will not materially change your financial future, but it will make the experience feel less clinical and more human.

The key is setting a clear boundary. Decide in advance what percentage you are comfortable spending (5 to 10 percent is common), spend it deliberately, and invest the rest according to your plan.

Common Mistakes to Avoid

Over 15 years of working with Ontario families, I have seen the same inheritance mistakes come up repeatedly:

• Doing nothing for too long: Parking money in a savings account for a few months is smart. Leaving it there for three years because you cannot decide is not. Inflation erodes purchasing power, and the opportunity cost of not investing compounds quickly.
• Giving it away too quickly: It is generous to help family members, but make sure your own financial house is in order first. You cannot help anyone if you run out of money yourself.
• Making investment decisions based on guilt: Some people feel guilty about inheriting money and invest it recklessly or give it away to avoid the discomfort. This rarely ends well.
• Ignoring the tax implications of inherited assets: If you inherit a non-registered investment portfolio, understanding your adjusted cost base is critical. Selling without this knowledge can lead to an unexpected tax bill.
• Not updating your own estate plan: If you just inherited a significant sum, your own estate is now larger. Your will, powers of attorney, and beneficiary designations may need updating. Our estate planning guide for Ontario families walks through every document you should review.

When to Work with a Financial Advisor

If your inheritance is under $25,000 and your financial situation is straightforward, you can likely handle it yourself. Pay off any high-interest debt, top up your TFSA, and move on.

If your inheritance is $100,000 or more, or if your financial situation involves any complexity (business ownership, rental properties, multiple income sources, approaching retirement, blended families), working with a financial advisor is worth the investment. The tax planning, investment structuring, and estate considerations involved with a six-figure inheritance are too consequential to guess at.

The cost of professional advice is small relative to the cost of the mistakes it prevents. A single tax error on a $400,000 inheritance can cost $20,000 or more. A poorly structured investment portfolio can leak tens of thousands in unnecessary fees over a decade.

Making the Most of This Moment

An inheritance is a one-time event. You do not get to redo it. The decisions you make in the first six months after receiving a significant sum will shape your financial life for decades.

Take your time. Get clear on your own situation. Pay off expensive debt. Fill your registered accounts. Invest the remainder in a low-cost, diversified portfolio aligned with your goals. And address the broader financial planning questions that an inheritance brings to the surface.

If you are in London, Ontario or anywhere in the province and want help building a plan around an inheritance you have received or expect to receive, I am happy to have that conversation. You can learn more about how I work on my financial planning page or reach out to set up an initial meeting. There is no pressure, no sales pitch, just a straightforward look at what makes sense for your situation.