If you are one of the lucky people who have received an inheritance, there are a few things you need to know. Many people don’t realize that there is more to receiving an inheritance than just getting money or property from a relative who has passed away.
Understand the Tax Implications
Usually, when you receive money or property from someone, you have to pay taxes on it. For instance, if you sell a piece of property that you inherited, you will most likely have to pay capital gains tax. Inheritances are different.
In most cases, you do not have to pay any taxes on money or property that you inherit from someone. However, there are a few exceptions. For example, if the inheritance is in the form of an IRA, you may have to pay taxes on the money when you withdraw it from the account.
Also, if you inherit a house or other property that has increased in value since the original owner bought it, you may have to pay taxes on the increase in value when you sell the property. Understanding the tax implications of receiving an inheritance can help you to avoid paying taxes that you don’t have to pay.
You May Not Get the Inheritance Right Away
Depending on the size and complexity of the estate, it can take months to settle everything and distribute the assets. Firstly, the will needs to be filed with the probate court. The executor of the estate (the person named in the will to carry out the wishes of the deceased) then has to locate all of the assets, pay any debts and taxes, and then distribute the remaining assets to the beneficiaries.
Note that depending on your situation and state, the probate process can be complicated. Probate in Florida, for example, handling a complex estate, can take up to nine months and cost tens of thousands of dollars.
If the estate is large and complex, it could take even longer and cost more. So, if you are expecting to receive an inheritance, don’t spend it all right away because you may not get it for a while.
You May Not Get What You Expect
When someone dies, their assets are used to pay debts and taxes. This includes things like credit card debt, mortgages, and other loans. If there is not enough money to pay all of the debts and taxes, the creditors will be paid first and the beneficiaries will receive whatever is left. This means that you may not receive as much money or property as you were expecting.
In addition, the executor of the estate has a lot of discretion when it comes to distributing the assets. For example, if there are two children and one child needs the money more than the other, the executor may give more of the inheritance to that child.
You May Have to Pay Debts
If you inherit money or property from someone, you are not responsible for their debts. However, if you inherit a business from someone, you may be responsible for the business’s debts.
In addition, if you are named as the executor of the estate, you may be responsible for paying the deceased person’s debts out of the estate. So, if you are expecting to inherit a business, make sure you understand the financial situation of the business before you agree to take it over.
It’s also important to note that in some cases, creditors may try to collect debts from beneficiaries. For example, if someone inherits a house from a relative who died with a mortgage on the property, the creditor may try to collect the debt from the beneficiary. However, in most cases, creditors cannot collect debts from beneficiaries.
A Financial Advisor Can Help
If you are expecting to receive an inheritance, it’s a good idea to talk to a financial advisor. They can help you to understand the tax implications of receiving an inheritance and how to best manage the money or property that you inherit.
For instance, if you inherit a house, the financial advisor can help you to decide whether to sell the house or keep it and rent it out. They can also help you to invest the money so that it grows over time.
Bottom Line
Receiving an inheritance can be a windfall, but it’s important to be prepared for it. Understanding the tax implications, the probate process, and your rights as a beneficiary can help you to make the most of your inheritance.
