Estate PlanningTrustsWills

I Just Received an Inheritance, Now What?

If you are reading this post because someone close to you recently passed away, then let me begin by saying I’m sorry for your loss. Losing a loved one is not easy, but it becomes even more difficult when you have to make decisions that can have lifelong consequences. The laws on property rights regarding inherited assets are many, so the best advice anyone can give when someone receives an inheritance is to contact a professional for help. Below are three considerations as to why you may want professional guidance:

  1. Property Law: Inherited property is typically received as “separate property,” even if you are currently married or get married in the future. For example:

John and Sue are married, when Sue’s mother passes away, she gifts Sue $100,000.00. That gift, so long as it is not comingled, remains Sue’s separate property and if John and Sue are later divorced or John is subject to some sort of financial liability, Sue’s inheritance is protected.

However, if Sue and John use the money to buy marital property, combine the money with a joint bank account, or otherwise demonstrate Sue wanted the money to be part of the marital estate, the courts may award John or his creditors with a portion of Sue’s gift.

  1. Estate Taxes: The most recent tax bill doubles the threshold for federal estate taxes. However, there are still many other tax considerations for the unwary when it comes to inherited assets/money. State taxes, income taxes, and capital gains can all weigh heavily into how one can best protect an inherited asset.
  1. Asset Type: Knowing what you inherited and how it moves through the various provisions of the tax code is very important.

For example, deciding whether to roll-over an inherited IRA/401(k) or withdrawing the funds is an important decision that should only be made after speaking with a financial professional. There are deadlines for such elections and while there are often great pros to rolling these accounts over, there may be times (even if rare) where it makes sense to withdraw the funds.

On the other hand, the inheritance of a piece of land carries with it different considerations. Did you inherit full or partial ownership? What are the land’s liabilities (i.e. environmental hazards, pools, etc.)? Do you plan to maintain the land or use it as an investment?

Bottom Line: Receiving proper guidance and education about your options regarding inherited assets is often a time-sensitive matter and should not be taken lightly. These three considerations are just a few of many that you will want to fully explore before making your decision(s) and I highly recommend you consult a professional to help you navigate your options during such a difficult time.

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