Learning that you are receiving an inheritance can be a really exciting, per perhaps overwhelming concept. There are a few things to know about inheriting assets because depending on the type of asset, you may need to plan for and manage them differently.
Five Things to Know About Accepting Your Inheritance
1. Cash. Money from an estate that is liquid will be sent to you as a beneficiary in the form of a check. You are free to deposit this money and it will not be taxed as ordinary income. Depending on the amount you may want to meet with a financial advisor to determine next best steps about investing the cash so that you can save and earn interest on it.
2. Retirement Accounts. This may be one of the most complicated assets that is transferred from the decedent’s estate to the chosen beneficiaries. Traditional retirement accounts (IRAs) and 401(k)s are taxed as income, while Roth IRAs are not. Under the new Setting Every Community Up for Retirement Enhancement (SECURE) Act, assets inherited from retirement accounts must be distributed within ten years if the IRA owner died on or after January 1, 2020 (unless you are a spouse). Some estate plans will be structured to protect these retirement assets by requiring them to be placed into either a conduit trust or an accumulation trust. When this is the case, the beneficiary will receive distributions from the trustee managing the trust.
3. Real Estate. Many real estate transfers are done outside of the probate process. This is determined by the way the deed is titled. Joint property passes automatically to co-owners. Individually owned property may be part of the estate and pass according to the terms of the will. Real estate will have a step-up in basis adjustment in value upon the death of the owner.
4. Securities. Securities will be re-titled and also subject to a step-up in basis adjustment of the value upon the death of the owner.
5. Life Insurance. Proceeds bypass probate and go directly to the named beneficiary in the form of a check from the insurance company unless the decedent’s estate was named as the beneficiary. These proceeds are typically tax-free to the recipient.
Receiving an inheritance may be a good time to consider long-term planning in the areas of finances, retirement and estate planning. For more information, contact the estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
