The 8-Step Process to Inheriting the Wealth of Others

When someone inherits money or property, it can be very emotional. It could add to your financial woes rather than ease them. Follow these suggestions to make the most of your inheritance.

1.Managing your finances wisely requires you to act on purpose. Because of the complex range of feelings involved, this is especially true when dealing with an inheritance. If you expect to receive an inheritance shortly, consider consulting a financial planner about how best to handle the money.

When the money finally arrives, take a deep breath and think it through so you can make the best choice. Putting money in a certificate of deposit (CD), savings account (savings), or money market account (money market) that is insured by the Federal Deposit Insurance Corporation (FDIC) is one option.

2.Obtain advice from gurus.

An inheritance can mark a significant — and sometimes overwhelming — turning point in one’s financial life. There are many options to weigh and think about, some of which you might not even be aware of. How will the inheritance affect my taxes now and in the future? What forms must you fill out to have the property transferred into your name? Is there anything special that needs to be done legally before you receive your inheritance?

These are just some of the many crucial choices that may be made with the assistance of a financial counsellor. An estate planning attorney and tax expert should be consulted if the size and extent of the inheritance warrants it.

3.Learn about your new possessions.

The shape an inheritance takes can vary widely. Having a firm grasp of what you received is crucial before moving forward. Retirement funds, stocks and bonds, life insurance, cash endowments, enterprises, and real estate are all examples of potential asset classes.

A financial counsellor can evaluate the factors, determine the expected value of your assets, and tell you whether or not they will be made accessible to you all at once or in instalments.

4 Consider the financial repercussions

You may have to pay taxes on any money or property you inherit. Different tax rules may apply to the various inheritance assets you’ve received.

• IRAs: If your spouse leaves you an IRA, you can choose how to handle the money. Depending on your selection, you may or may not be subject to an annual required minimum distribution (RMD) from the account. The RMD requirements apply if you did not inherit the IRA from your spouse and vary depending on the situation’s specifics. If you do not take RMDs as required, you could face a hefty tax penalty of up to 50% of the amount you should have taken.
• Stocks and other investment assets received as an inheritance Stocks and other inherited assets are generally appreciated at their fair market value on the date of the decedent’s death rather than their original purchase price for tax reasons. This is known as a “step-up in basis,” which might alter the tax you owe on a sale of assets.
• Life insurance payouts A life insurance payout usually will not result in a taxable income. You will have to pay taxes on the interest you earn if you put the money or any inherited assets into an interest-bearing account. If you received a sizable inheritance, you may need to make estimated tax payments to cover these costs.
• Your financial situation may change drastically depending on how you handle the tax ramifications of an inheritance, and a financial advisor can work with your accountant to find tax-efficient strategies for wealth preservation.

5.Think about where you want your money to go.

It would help if you reevaluated your wants and needs for money after you firmly grasped your inheritance. Options that get you closer to your most essential goals should be investigated. You might, among other things,

• Contribute the maximum allowed to employment retirement plans
• Rebalance your portfolio.
• Start or bolster a rainy-day reserve.
• Reduce or eliminate debt; save for retirement or other goals; invest in yourself or your property; give to charity; leave a legacy.

A financial advisor can assist you in evaluating your situation and goals and recommend appropriate investment strategies, insurance policies, cash management vehicles, and other resources.

6.Review your coverage in point

If your net worth has increased significantly, consider purchasing additional property and liability insurance, such as an umbrella policy. It’s also an excellent opportunity to take stock of your situation and investigate what safety nets are available.

Talking to a financial counsellor about your life insurance needs is a good idea.

7. Make an estate plan or revise your current one.

If you’ve recently inherited a substantial sum, consider building an estate plan or revising an existing one to secure your financial legacy. You should consult a lawyer about changing your will, setting up a trust, or taking other measures to reduce the federal and state estate taxes owed by your heirs if you have received a substantial sum.

8. Go forth with self-assurance

Use the resources available to you as you plan for and deal with an inheritance. You should talk to a financial advisor at Ameriprise. To help you feel more prepared to handle your estate and the future that comes with it, they will examine your entire financial picture and walk you through key decision points.