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Inheriting Money

April 4, 2023

Five Steps to Take After Receiving an Inheritance

Receiving an inheritance can be an emotional and overwhelming event. You will need to make decisions that can have a major impact on your financial future while grieving the loss of a loved one. Taking the process one step at a time can help ensure nothing is overlooked. The following steps can help guide your decision-making process.

  • Step 1 – Give yourself time to process

The best thing you can do is take time to grieve your loss. Be with your family and reflect on your loved one. Take time to work through your emotions so that, when you are ready, you can make any necessary decisions with a clear and logical head.

    • Step 2 – Understand your role

Once you’re ready to begin making decisions, it’s important to gain an understanding of your responsibilities. Your loved one may have named you to one of the following roles:

      • Executor or successor trustee – In these roles you are responsible for distributing assets to each of the named beneficiaries. You will need to work with the various account custodians and financial institutions to retitle and distribute assets. To do so, you may be asked to provide the death certificate, copies of estate planning documents or company-specific forms.
      • Beneficiary – If you are a named beneficiary, you will need to open any necessary accounts to receive your inheritance and provide the information required to distribute the accounts. You should strive to be as responsive to the executor or successor trustee as possible, as some accounts can’t be distributed or retitled until the institution has received information from all beneficiaries.
    • Step 3 – Seek the support of professionals

Working with a team of professionals can help streamline the process and ensure you are making wise decisions. Consider enlisting the following:

      • Financial planner – Because the amount of an inheritance is rarely known in advance, it’s unlikely the inheritance has been incorporated into your financial plan. Work with a financial planner to understand how the inheritance impacts your financial goals and adjust your plan accordingly.
      • Estate planning attorney – Your inheritance should trigger a review (or the creation) of your own estate plan. A qualified estate planning attorney can help ensure your estate plan reflects your current wishes and any changes in your financial situation.
      • CPA – Making the wrong decision with an inherited asset can have a huge tax implication. Consider enlisting the help of a Certified Public Accountant to identify the tax consequences of any potential decisions in order to minimize the amount of taxes you owe.
    • Step 4 – Understand your options

Some inheritances are very straightforward, for example a bank account and some personal property. However, if your inheritance includes retirement accounts, investments, insurance policies or real estate, it becomes even more critical to identify the right path forward. Take time to weigh your options, consider the advice of your professional team, and execute a smart strategy with regard to the following account types.

      • Retirement accounts – Traditional and Roth IRA assets are transferred into an inherited account for each beneficiary (spouses have additional options, including transferring assets into their own IRA/Roth IRA). Once the assets are transferred, each beneficiary must take a distribution from the inherited account. Distributions from inherited traditional IRAs are taxable, and distributions from Roth IRAs are tax free. Your professional team can help ensure any required distributions are processed prior to applicable deadlines.
      • Taxable investment accounts – The distribution options for a taxable investment account depend on how the account was titled. If it was held individually in your loved one’s name, the assets can be transferred to an investment account in your name. If the account was titled in the name of a trust to which you are named the beneficiary, the successor trustee will distribute the assets according to your loved one’s wishes, as outlined in the trust. Your advisory team can help determine if the cost basis of the investment will need to be adjusted.
      • Real estate – Inheriting real estate can be very simple or very complex. If you are the sole owner of an inherited property, it may just be a matter of incorporating the property into your financial plan. If, on the other hand, you inherit a portion of the property, you will need to work with the other beneficiaries to decide how to handle it. If the real estate is held in a trust or partnership, the property will be either held or sold according to your loved one’s wishes, as outlined in the trust or partnership agreement.

Regardless of how the real estate is owned, any ongoing costs, including mortgage payments, taxes, insurance and utilities, will be the responsibility of you, the other beneficiaries and/or the trust or partnership.

    • Step 5 – Make your inheritance work for you

After weighing all options, work with your financial planner to ensure your financial plan incorporates your inheritance and is accelerating your progress toward your goals.

At Creative Planning, our advisors help clients navigate the opportunities, challenges and pitfalls of sudden wealth. Each of our dedicated teams includes an attorney, a CPA and a Certified Financial PlannerTM practitioner. These experienced professionals work together to maximize your inheritance and help ensure it is available over the long term. We enlist the support of the firm’s tax advisors, insurance professionals, investment team, estate planning professionals and more to help you reach your specific financial goals. If you’d like help with your inheritance, or for any other financial concerns, please schedule a call.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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