Tax Considerations in Private Wealth Management for Inherited Wealth

Emily is a 50-year-old successful entrepreneur planning for her retirement. She has a net worth of $6 million, primarily in a mix of taxable and tax-deferred accounts. Recently, Emily received a substantial inheritance of $1 million in cash and is uncertain how to allocate this amount, considering the potential tax implications for her overall investment strategy.

As a private wealth manager, you have been tasked with advising Emily on the tax considerations relevant to her portfolio management decisions. Discuss the impact of her inheritance on her taxable income, the importance of asset allocation in relation to tax efficiency, and strategies she might employ to optimize her tax situation while pursuing her financial goals.