Keys to Remember when you Receive an Inheritance

Statistically over the next decade many aging americans will pass away transferring a large amount of wealth from the current generation to the next younger. There are many confusing aspects of receiving an inheritance.  Here are a few confusing items we have experienced with clients over the last 20 years explained, to help clarify the situation and process.

 Taxes are usually not an issue for the recipient:

Most taxes are paid at the estate level or at the passing generations level prior to distribution to beneficiaries. Under current tax laws most assets receive a step up, or revaluation at the time of death and as such transfer to the beneficiary without taxes. Current tax laws even allow for IRA type of assets to transfer to the next generation in the form of a Beneficiary IRA, which carries special tax benefits and allows beneficiary to slow the taxable distributions, resulting in only a small annual taxable distribution to beneficiaries. (Current estate taxes rates and amounts are uncertain, but we feel will be clarified by the end of the year 2010.)

Upon receipt of the inheritance it may be time to review your Liability Insurance:

The type of liability insurance most important in the event of an inheritance is what we call an Umbrella Policy, and is usually purchased through your homeowners agent or automobile agent. This insurance acts as a gap type of insurance and helps cover holes in your regular personal coverages at a very reasonable cost, usually less than $1000 annually and covers up to 1 or 2 million dollars of gap liabilities.

Inheritance are separate assets until commingled:

Assets from an inheritance are separate assets, but do become commingled, or joint assets, upon contribution to joint titled accounts. In certain instances there may be reasons for keeping assets separate, as such, it is important to deposit separate assets into individually titled accounts if you wish them to remain separate property.

Don’t make any hurried decisions:

The death of a relative or related person can be a traumatic experience, there is no extreme hurry to make decisions. In our experience, we have found knee jerk reactions can often be unwise due to the stress of the situation. Do not delay the process for an extended time period, but trying to make all needed decisions immediately may sometimes have negative results.

This short list is not exhaustive and many situations may differ in complexity. This list does represent our most common misunderstandings and suggestions for helping in what may otherwise be a stressful situation.

Have a Good Day!


Comments are closed.