How Should I Handle an Inheritance?
Hearing about an inheritance can be bittersweet because it’s nice to receive a lump sum of money, but it likely means you have lost a loved one.
Real Simple’s recent article entitled “The First 3 Money Moves to Make if You’re About to Get an Inheritance” says that while you may be excited about the prospect of receiving unexpected money, there are certain financial moves you should make to make sure you’re prepared when you do get your inheritance.
Be patient and cautious. When you hear that you’ll be getting an inheritance, know that you’re probably not going to receive a check that week. This process can be slow. When you do get your money, take some time to consider what you want to do with this gift.
Seek out expert advice. Work with professional advisors, such as an experienced estate planning attorney to navigate the financial and legal implications of your inheritance. One task is to set up an account for your retirement because you don’t want to lose it or blow it.
An attorney can help you with tax implications you must consider. Estate taxes have become less of an issue, as a result of recent changes to the lifetime exemption amount. However, certain parts of an inheritance can trigger significant income taxes. An experienced estate planning attorney can explain how both federal estate taxes and any applicable state inheritance taxes may impact your inheritance.
For example, if you inherit all or a portion of a traditional IRA or 401(k) or 403(b) plan, you can “stretch out” the distributions over AT LEAST 10 years. This does two things. First, because the distribtions to you will be taxable to you, taking it out in fractions prevents most of the distributions from being taxed in the higher income tax brackets. Second, it allows whatever money is left in the IRA over 10 years to continue to grow tax deferred. Certain clients can defer distributions well beyond 10 years, such as minor or disabled persons. Check with a qualified estate planning attorney to find out about the tax benefits of inheriting an IRA apply to you.
Update your estate plan. Even if your inheritance isn’t going to make you an Elon Musk, take that time to review and update your own current estate plan.
In addition to impacting the way in which your family might inherit from you, getting an inheritance might make you to consider other alternatives for disposing of your own estate, like charitable contributions.
If the inheritance you’re receiving is significant, the chance that your own children or family will inherit a larger amount could also require additional planning.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “How Should I Handle an Inheritance?” read these additional articles: How Should I Plan to Sell My Business? and Do Charitable Trusts Help with Estate Planning? and What Power Does an Executor Have? and Can a Nasal Spray Prevent Dementia?
Reference: Real Simple (Dec. 27, 2021) “The First 3 Money Moves to Make if You’re About to Get an Inheritance”