Receiving an inheritance can open a Pandora’s box if you don’t know how to handle your new assets.

Inheriting a large amount of money or valuable property can change your life, especially if you’re young. After all, a sudden influx of wealth can bring you the freedom you didn’t have before. But it also brings new responsibilities. To handle your inheritance the right way, here are a few things you should know.

COUNTING YOUR CHICKENS

The first step toward being responsible about inheritance is not to take it for granted before you actually receive it. Even if you’re pretty sure that you’ll be receiving assets as a result of someone’s will, it’s a bad idea to spend or invest these assets until you actually have them. After all, if you end up having to wait longer than you expected to receive the inheritance—or if it loses most of its value while you’re waiting—you could find yourself in more debt than you can handle. If and when you do receive an inheritance you’ve been expecting, you should still think things over before you act. If you’ve inherited only a small amount—say, enough for a little vacation—then it can be okay to spend it on whatever it can cover. But if you’re receiving a larger amount, you don’t want to waste it. The sudden freedom that comes with a sizeable inheritance makes it easy to spend everything you get without thinking about how the money could benefit you down the road. In fact, you might think about hiring a financial adviser if you receive an inheritance bigger than 5% of your annual income.

Using the adviser of the person who left you money can help you ease into your new financial situation. But don’t stick with this person blindly just because you don’t want to hurt his or her feelings. Someone who is really going to be able to help you in the long run must suit your needs and your financial style.

INHERITING CASH

If you inherit enough to do something substantial, what should you do with it? Generally, it’s best to take a long-term view. If you have debts— especially credit card debts—your first priority may be to pay them off. In addition to improving your immediate financial situation, you’ll be improving your credit rating, which means you’ll be able to borrow more easily in the future. If you’re in good standing with lenders, consider using inherited cash to add to your investment portfolio. You can beef up contributions to your IRA, provided you have earned income. Or you might use part of the inheritance to open a regular taxable investment account or start saving for a particular goal.

INHERITING INVESTMENTS AND PROPERTY

If you inherit investments or property, one of the big questions you’ll face is whether to keep what you receive or sell it. Lots of different factors can affect your decision, including the sentimental value of the property, your financial standing at the time, and how well the economy is doing.

One of the biggest concerns is the tax you’ll have to pay when you sell the property. The good news is that because of something called a step up in basis, you don’t have to pay tax on the increased value of inherited assets. When assets are stepped up in basis, they’re revalued at the amount they’re worth when your benefactor dies, or when his or her estate is valued. So when you sell an inherited asset, you pay taxes as if you had bought it on the date it was valued, not at the time it was actually purchased. You end up saving a lot more money than if you paid based on the increase in value from the date it was purchased.

For example, if you buy stock for $20 a share and sell it at $50 a share, your cost basis, or original price, would be $20, and you’d pay capital gains taxes on the $30-a-share profit. But if your grandmother buys stock at $20 a share and she dies and leaves it to you when it’s valued at $50 a share, your cost basis would be $50. So if you sell it right then at $50 a share, you won’t owe any tax. Of course, you could always hold onto it and hope it increases in value. But that means weighing the potential additional gain—or loss—against the immediate cash value you could pocket by selling now.