Inheriting wealth can be a burden and a blessing. Even if you think a family member may remember you in their will, there are many aspects of receiving an inheritance that you may not have considered. Here are some things you may want to keep in mind if you are about to receive an inheritance.
Take your time. If someone cared about you enough to leave you a sizable inheritance, then you will likely need time to grieve and cope with their loss. This is important, and many of the more major decisions about your inheritance can wait. You may be too overwhelmed to give your options the careful consideration they need and deserve. You may be able to make more rational decisions once some time has passed. If you receive money, just place it in a bank account and don’t worry about investing it right away. Take a breath. But note below some decisions and actions should be taken shortly after you hear of the possible inheritance.
Don’t go it alone. There are so many laws, options and potential pitfalls. The knowledge an experienced professional can provide on this subject may prove to be vitally important. Unless you happen to have uncommon knowledge on the subject, seek help. You are also likely to be inundated with requests for help from friends and family you didn’t even know you had. An experienced professional can remove some of the pressure on you from these people. Responding that you will have to check with your professional advisor is sure to get you at least some relief or time to more rationally consider these requests.
Do you have to accept it? Sometimes inheritances can be more of a burden than they are beneficial. If you receive property that needs environmental clean-up or property you may not be able to easily sell, you may just be accepting constant headaches. Disclaiming some (or all) of the gift may be worth contemplation. But if you are thinking about this, be aware that there are time limits within which you must make that election to disclaim. Consult your estate, probate or tax professional as soon as possible.
Think of your own family. When an inheritance is received, it may alter the course of your own estate plan. Be sure to take that into consideration. You may want to think about setting up trusts for your children – to help ensure their wealth is received at an age where the likelihood that they’ll misuse or waste it is decreased. Trust creation may also help you (and your spouse) maximize exemptions on personal estate tax.
Income taxes. If you’ve inherited an IRA, it is extremely important that you weigh the tax cost of cashing out against the need for instant funds. A cash out can mean you will have to pay (on every dollar you withdraw) full income tax rates. This can greatly reduce the worth of your bequest, whereas allowing the gains of the investment to continue to compound within the account, and continuing to defer taxes, may have the opposite effect and help to increase the value of what you’ve inherited. Again, it is very easy to make a mistake in handling an inherited IRA, so contact an experienced professional immediately.
Stay informed. The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct. The assistance of an experienced financial professional may be more important than ever before.
The bottom line is to take a breath, place your inheritance in a safe place for a while and in the meantime, contact your experienced professional advisors for advice and direction. You make the final choice, but it is always wise to have those choices reviewed by experts in the field.