Receiving an inheritance—whether a small sum or a large windfall—can be a life-changing event. When a loved one passes away, it's easy to feel the pressure to make big decisions immediately—but you don't have to. Once you've taken the time to breathe, grieve, and heal, you can focus on what to consider when handling your inheritance. When you're ready, here's a guide that can help.
Personal finance
What to do with an inheritance
Receiving an inheritance—whether a small sum or a large windfall—can be a life-changing event. When a loved one passes away, it's easy to feel the pressure to make big decisions immediately—but you don't have to. Once you've taken the time to breathe, grieve, and heal, you can focus on what to consider when handling your inheritance. When you're ready, here's a guide that can help.
5 minute read
•
June 21, 2024
Personal finance
Estate planning
Financial management
Inheriting money
Advice
Taxes
First, what's an inheritance?
An inheritance is the transfer of assets, such as money, property, or investments, from a person who's passed—legally referred to as the decedent—to their chosen beneficiaries or heirs. Inheritances can come in various forms, from small personal belongings to substantial sums of money.
When a person passes away, their assets are typically distributed according to the instructions outlined in their will or trust. If no legal documents exist, state laws determine the distribution of the estate. Heirs or beneficiaries named in the will or by law are entitled to receive the assets specified.
Commonly inherited nonretirement investment accounts include individual and joint bank accounts. Inherited retirement accounts—also known as inherited IRAs—include Roth and traditional IRAs.
Legal and tax implications
Though there are no federal inheritance taxes in the United States, some states assess inheritance taxes when assets are transferred from a decedent to their heirs. The amount of inheritance tax owed depends on many factors, including the value of the assets inherited and the relationship between the decedent and the heir.
In addition to inheritance tax, there may also be other legal considerations associated with an inheritance. This includes probate, which is the legal process of authenticating a will and distributing the assets of the individual who has passed away. Probate can be a complex and time-consuming process, and it may involve various legal fees and expenses. It's also important to be aware of any potential claims or disputes that may arise in relation to the inheritance. These include challenges to the validity of the will or disputes among beneficiaries. Seeking legal advice can help ensure that the inheritance process is handled smoothly and that all legal obligations and requirements are met.
How to make the most of your inheritance
When your loved one leaves you an inheritance, it's meant to be an act of kindness and love. Still, it's easy to feel overwhelmed with all the paperwork and financial decisions. By taking it one step at a time, you can use your inheritance to get closer to your financial goals.
Finalize your plan
Navigating financial matters, especially after receiving an inheritance, can be complex and overwhelming. By taking your inheritance one step at a time, you can set yourself—and future generations—up for financial success, while honoring your loved one's legacy.
Get one step closer to making the most of your inheritance.
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