Being the recipient of inheritance money can improve your financial well-being or drastically alter your life, as long as you manage it wisely. It’s not uncommon for beneficiaries to spend money when they receive a windfall of cash. For some, it is a reaction caused by a grievance. For others, it is due to a lack of financial knowledge.
There are several ways to receive inheritance money. The most common is through a Last Will and Testament. When a person dies, his will must be filed in probate court. Probate is the process used to determine the validity of the decedent’s will and ensure that probate laws are followed.
Financial experts state that the average probate process takes three years to complete. Much depends on the workload of the probate court and the value of the estate. If family disputes arise and the heirs contest the will, the assets of the estate can be tied up for years. If the decedent’s estate is valued at less than $50,000 and the heirs agree, the estate can usually close within six to nine months.
Before the beneficiaries can receive the assets of the estate, the outstanding debts of the creditors must be paid. If the decedent owned real property secured by a mortgage note, the estate must continue to make mortgage payments and hold the property throughout the probate process. If the estate does not have sufficient funds to maintain the property, a judge can order the estate administrator to sell the real estate.
There are strategies to keep inheritance money and assets out of the estate. Owners of individual retirement and investment accounts can assign transfer beneficiaries in the event of death. In the event of death, the executor of the estate must file ‘date of death’ value forms with the county tax assessor’s office.
As long as the decedent does not owe back taxes, the assessor’s office will sign the forms. Estate managers must submit the tax form and a copy of the decedent’s death certificate to the financial institution where the funds are held.
Owners of checking and savings accounts can assign payable-on-death (POD) beneficiaries. The process to obtain funds is the same as the transfer in case of death. As long as the decedent is current on her taxes, TOD and POD funds can usually be obtained within 90 days.
When people own property that needs to be titled, such as real estate or cars, the owners can obtain a joint title. For example, if the decedent owns a car and wants his son to receive it when he dies, he can title the car in both his name and his son’s name. Upon death, the son may transfer the title to her own name by submitting a copy of the joint title and death certificate to the Bureau of Motor Vehicles.
Inheritance money can be gifted to recipients while the deceased is still alive. The Internal Revenue Service allows taxpayers to donate up to $12,000 per person, or $20,000 per married couple, per year. Gifting the inheritance in advance ensures that the intended recipients receive the money, while keeping cash out of the estate.
Once the inheritance money is received, it is important to establish an investment strategy. It’s best to consult with a financial expert who can help you navigate through the various options. Doing so can help avoid additional taxes and ensure your inheritance is invested wisely for your future.