You’ve just found out that you were named in someone’s will. There is a range of feelings and emotions that come with this. It’s important not to rush because your decisions today can have a lasting effect on your inheritance. In addition, the intense emotions of grief can impact your decision-making skills. This guide will help you navigate important facts about inheriting things.
1. It’s Not Just Cashing a Check
When you inherit money from someone, there isn’t a magic suitcase full of cash that you can take home with you that day. You need to be prepared to wait, as it can sometimes take months or even years to process the estate. There could be a lump sum that will get transferred to your account. It could also be distributed into installment payments that you will receive over time.
2. There Might Be Restrictions
Once you find out that you will inherit money or property, you might start developing ideas about how you’ll use your new asset. Perhaps you’ll use inherited money to pay off debt or make improvements to your home. If you inherit property, you may want to sell it or turn it into a vacation home. Not so fast. Before you get too far in your planning, be sure to read the fine print. There could be restrictions on the inheritance that limit your use. There can also be requirements that you have to meet before receiving the inheritance. For example, you may need to earn a degree or get married.
3. You Might Owe Taxes
Receiving an inheritance isn’t a free windfall of money or assets. You may owe federal estate tax or other taxes. Federal estate taxes apply to estates that are larger than $5.6 million. Five states currently have an inheritance tax, and eleven have an estate tax. The amount that you could owe will depend on where you live and your relationship with the person who passed away.
4. Inheriting Retirements Can Get Complicated
Inherited cash isn’t taxed as regular income, but retirement accounts could be. Traditional IRAs come with income tax restrictions, and you’ll pay the same taxes as the original owner when you receive distributions. However, Roth IRAs are typically tax-free. There can also be a deadline on how quickly you deplete the account. It’s best to speak with a professional to get advice on how best to handle a retirement account inheritance to ensure you don’t incur unnecessary fees or taxes. Because of the intricacies of the different retirement plans, it can be helpful to speak with an expert because they explain the important facts about inheriting things.
5. House Inheritance Means Options
If you find yourself inheriting a house, you typically have three options. You can keep the home and move into it, you could keep the home and rent it out, or you could sell the home. If you decide to sell the inherited home, you could owe capital gains tax. This is the difference in values between when the original owner passed away and when you sold it. Another factor that can influence your decision is if there is a mortgage on the property. You will now have to take over making those payments as the new owner.
You also should consider the additional expenses of maintaining your new property. These include things like property taxes and insurance. In Florida, the homestead exemption can apply to some inheritance situations. Depending on the status of the owner and your relationship with them, you may qualify to inherit their homestead exemption.
Prepare Your Estate Planning Documents
As you can see, inheriting cash or property from someone can be more complicated than simply accepting your new assets. There could be restrictions or requirements that you must follow. You may also unwittingly take on additional responsibilities in order to maintain your new asset. Speaking with an experienced estate planning attorney can help you understand the important facts about inheriting things so that you can make the best decisions for your inheritance.
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