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Family dynamics and financial matters can frequently lead to complicated scenarios, especially in the event of a death — particularly when one relative is named as a beneficiary and another is not.
Consider the case of Riley, who received a $250,000 check after being named the beneficiary of her dad’s life insurance policy. Riley’s mom inherited her husband’s retirement savings and the house (she also receives a Social Security check each month).
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Regardless of this, Riley's mother feels that her husband erred in leaving $250,000 to their daughter rather than to her. Consequently, she is insisting that Riley hand over the beneficiary check to her, while “permitting” Riley to retain $5,000 to assist with wedding expenses.
On the other hand, Riley is in need of some financial support. With her upcoming wedding, she likely has plans to purchase a home with her fiancé and begin a family. Their combined income is quite modest, so this beneficiary check could significantly ease their financial burden. It could cover their wedding expenses, contribute to a down payment on a house, and still leave them with savings for retirement and future aspirations, including their child's college education.
However, following her mother's remarks, Riley begins to question whether her desire to keep the money instead of giving it to her recently-widowed mom is selfish.
Is it advisable for Riley to endorse her beneficiary check?
While each situation varies, in this instance, it was evident that Riley was designated as the beneficiary of her father's life insurance policy, whereas her mother was listed as the beneficiary for his retirement savings.
Unless coercion is involved, it’s hard to make a “mistake” when assigning a beneficiary — a policyholder needs to provide the beneficiary’s full legal name, as well as additional information such as a Social Security number.
If Riley’s mom really wanted to, she could contest the life insurance beneficiary, though she’d need a valid case (and legal support) to successfully do so. For example, the beneficiary could be contested if the policyholder had dementia or cognitive impairment — and you can prove the policyholder was incapable of making sound decisions at the time of designating a beneficiary — or if the policyholder was coerced or signed the policy under duress.
Before his passing, Riley's dad was mentally sharp and aware. Knowing that Riley could benefit financially, he probably intended to leave her something to help her get ahead in life.
Life insurance money received as a beneficiary isn’t taxed (it’s not included in gross income), though any interest you make on that money would be taxable. With this in mind, Riley's inheritance could truly be a life-changing windfall if she were to keep it.
If she were to sign the check over to her mother, it would be considered a gift that would go toward her lifetime gift tax exclusion. In 2025, the annual gift tax exclusion is $19,000, which means if Riley gifts more than that to her mother, she’d have to report it to the IRS. Riley likely wouldn’t pay taxes on it, but it would count toward her lifetime gift tax exclusion of $13.99 million. Riley would be wise to seek legal assistance to help her navigate such a gift, if that’s the route she chooses to take.
Holding onto the money might significantly change Riley's circumstances, but it could also put a strain on her relationship with her mother. On the other hand, transferring the check to her mother could lead to lingering feelings of resentment from Riley. It's a delicate dilemma.
How to manage a sudden influx of money
Should Riley choose to retain the money, she will need to consider how to allocate it. Financial advisors generally concur that when one comes into a windfall — an unanticipated sum of money — it’s acceptable to indulge in a small fraction of it on something special. For instance, Riley might spend $5,000 on her wedding, as her mother proposed, which could help her and her partner minimize any potential wedding-related debt.
From there, most financial experts recommend building an emergency fund (if you don’t already have one), paying off high-interest debt (such as loans and credit-card debt), maxing out retirement savings plans and choosing a diversified mix of investments that includes stocks, bonds, ETFs and possibly alternative assets.
In Riley’s case, if she wants to buy a house, she could consider using a portion of that money for a down payment. She may also want to consider opening a 529 college savings plan for her future children and maxing out her 401(k).
Nevertheless, many financial advisors recommend against making impulsive choices following a sudden influx of money, such as an inheritance or a lottery win. In Riley's situation, she is coping with the loss of her father just as she is preparing for her wedding. The urging from her mother to hand over the beneficiary check has probably thrown Riley into a whirlwind of emotions.
Riley has the option to invest the money in secure avenues for now, and when she feels prepared, she can consult with a financial advisor to figure out the most effective strategies to achieve her financial aspirations. However, before taking any steps with the funds, Riley might have to engage in a difficult discussion with her mother.
It’s worth considering that Riley's dad must have left the money to her for a reason, and it’s also important that his wishes be honored.