Getting The Most From An Inheritance
The death of a loved one is an emotionally devastating time for family members and friends. If you were close to the individual, you may have inherited money, either through their assets or as the result of a life insurance policy. While you may still be reeling from your loss, it is important to recognize the impact an inheritance can have on your own estate planning. The following provides some helpful tips on how to effectively handle this type of situation, to help ensure you get the most out of any property or funds you receive.
Managing an Inheritance
If you have been named as a beneficiary of the estate of a loved one and are inheriting money or property, it may be good to hit the ‘pause’ button before making any major decisions. CNN Money claims that the average amount most people receive as the result of inheritance is generally less than $100,000. While this amount can certainly affect your current financial picture, it is important to be realistic about any long term effects it is likely to have. It may not be enough to quit your job, pay for your children’s college, or provide for a cushy retirement, but making thoughtful decisions can help ensure you get the most out of it. CNN recommends these tips:
Give yourself time to grieve. Times of emotional distress are not ideal for making financial decisions. Allow yourself time to get over your loss before making any major plans for an inheritance.
Prioritize goals: If you have outstanding debt, pay that off first to avoid paying interest. Put money in your retirement account before paying college costs, as these expenses can be covered through low interest student loans.
Seek professional guidance. Having an experienced estate planning attorney working on your side can help you avoid common pitfalls when dealing with gifts and inheritances that could actually cost you money in the long run.
Be Alert To Tax Ramifications
Intuit advises that while property and assets received through inheritances are not considered income, you could owe money on any interest dividends or profits made if you sell. The following are three recommended ways for avoiding taxes and penalties, so you and your own beneficiaries get the most out of an inheritance:
Put your inheritance into a trust: A trust can help protect inherited assets while letting you enjoy the benefits, and can help your own beneficiaries avoid probate if anything happens to you.
Roll retirement accounts into your own IRA: This can help avoid taxes and penalties, while protecting your spouse in the event of your death.
Make gifts: Providing gifts to loved ones that fall within IRS guidelines can help limit your own tax liability.
To discuss ways of protecting and handling inheritances benefits for you and your loved one, contact Cavallo & Cavallo. As experienced New York estate planning attorneys, we can help you explore your options so you can get the most out of your money. Call or contact us online and request a consultation in our Bronx or Westchester office today.