By 2048, an estimated $124 trillion in wealth will change hands as older generations pass away. Much of this wealth will pass from parents to children, but it's also possible to inherit from other loved ones.

Let's pretend, for example, that Leah is 72 and retired, but her sister Paige passed away and left her $40,000. Leah isn't sure how to handle the windfall. She doesn't want to let her sister down and she wants to make the most of the funds, but doesn't know what that looks like.

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Fortunately, she has multiple options. Here's what experts recommend Leah do with the cash.

The best use of an inheritance isn't the same for everyone, so Leah needs to consider the state of her finances.

"At age 72, a $40,000 inheritance may not change your retirement, but the best use of it depends on your personal circumstances and greatest financial need," Tom Buckingham, an actuary and chief growth officer at Nassau Financial Group, told Moneywise.

Cody Schuiteboer, president and CEO of Best Interest Financial, agrees. "Make sure you consider this within the larger context of your situation," he advised. However, Schuiteboer and other experts also warned that Leah's first focus must be understanding the tax implications and technical requirements of the inheritance.

For example, there are special rules for when you must make withdrawals from inherited IRAs or 401(k)s, and, as Chris Dixon, registered financial consultant and co-founder of Oxford Advisory Group, warned, "receiving your inheritance can trigger estate, capital gains or income taxes depending on your state and situation."

Fortunately, Leah can minimize the amount lost to the IRS because, as David Talley, founder of Talley Wealth, explained, the value of an inherited asset normally resets to the value at the time of death for capital gains tax purposes. This provides a lot of flexibility.

"The biggest error I see is that someone receives an inheritance and assumes it should stay invested the way it was before," Talley told Moneywise. "It's legally yours now, and the law is largely set up to support you acting on that. With most assets you can sell, reinvest around your own plan, and incur basically no tax penalty because of that step-up."

Schuiteboer suggested talking to a fiduciary financial advisor and a tax professional about these issues.

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As Leah considers her finances, most financial professionals shared the same advice for her if she has debt. Deal with that first.

"Paying off debt, especially if that debt carries a high interest rate, is a return on investment that is virtually guaranteed and hard to beat," said Schuiteboer. "A $40,000 inheritance won't transform the financial reality of retirement, but if used correctly, could pay down a large enough liability to have a big impact on the monthly average cost of living."

If Leah has her debt situation under control, the next best option may be to shore up her savings.

"Before making a large purchase, consider whether the money could help build a cash reserve for unexpected expenses," Buckingham advised. He mentioned the rising costs of health care with age, something Leah should definitely consider. The average 65-year-old in 2025 will likely end up needing $172,500 in savings to cover health care expenses in retirement.

Schuiteboer recommends "a year's worth of living expenses set aside in a safe and accessible location." He stressed the importance of an emergency fund, telling Moneywise, "Living on a fixed income in retirement, real cash on hand prevents you from having to sell an asset at a bad time. Reserve cash is one of the most important assets a retiree can own."

So, what if Leah already has a fully funded emergency fund and no debt?

"If your essential living expenses are already covered by reliable income sources, such as Social Security, a pension, or other sources of guaranteed income like annuities, you may have greater flexibility in deciding how to use the inheritance," advised Buckingham.

Leah could decide to invest the money, but she could also just spend it on something that makes her happy, like taking a vacation or renovating her home. She'll have to think about whether the peace of mind of growing her balance sheet a little bigger outweighs the benefits of using the $40,000 for meaningful life improvements today.

As David Talley said, "The real question is the same one you would ask about any $40,000 in cash: what improves your life most? For some people, that's investing in it. For others it is paying off debt. Just make sure you are viewing it as what it really is, which is your asset now."

If Leah does decide to go have some fun with the money, that's more than OK as long as her basics are covered. "A windfall doesn't have to be life-changing to make a meaningful difference," Buckingham explained. "It's how you use that money as part of your overall retirement plan that matters most."

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This article originally appeared on Moneywise.com under the title: A 72-year-old retiree inherited $40,000 from her sister — here's what financial experts say to do first

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.