You’ve received the sad news that you’ve lost a loved one. You’ve also learned that you are the beneficiary of some assets. Now what do you do?
Unfortunately, we know that 80% of all inheritances are spent within ten years; this is an alarming number and would have many people turning in their graves.
My first recommendation upon inheriting is to seek the advice of an advisor immediately. Not only will an advisor help you to structure your assets properly moving forward, but they will also help you to evaluate your goals and where you stand in relation to them. From there, you can make educated decisions that will help to cement the legacy of your loved ones.
Inherited assets and taxes
Yes, Uncle Sam is someone you have to consider when it comes to estate planning and inheritance.
The state of Maryland has de-coupled its estate tax from the Federal limits. That means that Marylanders need to be aware of the current $5,000,000 limit when planning for their estates.
It’s also important to note that the SECURE Act changed the distribution rules for inherited IRAs. At first, it was interpreted that all funds needed to be distributed in full by the end of ten years following the death.
However, the IRS issued new guidance this year (2022) stating that if a person was taking required minimum distributions prior to their death, those distributions will need to continue, and a required minimum distribution must be taken each year from the beneficial IRA. (As with all tax advice, please consult your tax adviser.)
Yes, we know. Estate planning is confusing.
After dealing with all this as a beneficiary, you might be asking yourself if your own estate is in order. After all, you don’t want your loved ones to deal with more than they can handle while they’re grieving as well.
I always recommend that my clients work with an attorney when preparing their estate plans. We have them start off with the living documents:
- Health Care Power of Attorney
- Power of Attorney
- Advanced Directives
After that, local laws are really important. I see a lot of attorneys recommend revocable trusts for people who live in Virginia and Florida, but not nearly as often for people who live in Maryland.
If you have a blended family due to a second marriage, it is even more important that you work with an estate planning attorney. Everyone loves everyone else until there is money involved. I have gone through the challenging of a will with a client in the past. It wasn’t fun. Get your wishes in writing and make it simpler for everyone involved.
Help on both sides of an inheritance
The Boston College Center on Wealth and Philanthropy says the parents of baby boomers and boomers themselves will leave wealth and assets worth at least $41 trillion and possibly as high as $136 trillion to family and philanthropy over the next 47 years.
Financial advisors help both the giver and receiver to make sure that their wishes are carried out in a thoughtful, intentional way.
They can also help to protect you from yourself. An advisor will coach you on the best way to reach your goals as the person who is inheriting so that your inheritance has the impact on your life that your loved one was hoping for.
An advisor can also help the giver to make sure that they are passing the funds in a tax-efficient manner and that if you have any specific intentions, the funds are properly titled.