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Handling an Inheritance


After managing the grief of losing a loved one comes the potential burden and stress of managing an inheritance. Here are a few tips to help you through the process.

Consult a financial professional AND a tax professional. The laws surrounding inheritance are currently in flux and it is hard to know what the news rules are and how they apply to your situation. Working with professionals can help you navigate those rules easily and they can help guide you in how the different types of inheritance may affect your financial situation. They can assist you in planning for the sale of assets and deal with any tax implications. A few items you should be mindful of are:

  • Spousal versus non-spouse inheritance
  • Life insurance is typically tax-free
  • Non-retirement assets are taxed upon sale so make sure you receive the “step-up” in cost basis
  • Annuities or retirement plans are taxable upon distribution AND if a non-spousal inheritance the assets must be distributed by the end of the tenth year after the death

It’s easy to get swept up when you have a large influx of cash. Remember that your loved one intended your inheritance to improve your life. Use those funds to pay off debt, plan ahead by thinking about your retirement, buying a new home, securing your assets with insurance, etc. You may also want to think about your other goals such as charitable giving, helping other loved ones or paying it forward to future generations.

Before you make any decisions, deposit the inheritance or investments in a bank or brokerage account. In order to facilitate receipt of assets you will need accounts/policy information and a copy of the death certificate (most insurance companies will require originals). If you are married, you need to determine whether to put the account solely in your name or jointly with your spouse. Note that inheritances are considered separate property, in case of divorce. However, once they are commingled in a joint account, those assets lose that protection.

This communication is not intended to be tax advice and should not be treated as such. Everyone’s tax situation is different. You should contact your tax professional to discuss your personal situation.



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Saturday, 09 December 2023

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