I just received an inheritance…What now? First, congratulations on receiving a precious gift like that! Beck, Lenox & Stolzer Estate Planning and Elder Law, LLC, knows that when money or property comes your way unexpectedly, the first instinct may be to spend, invest, or give it away. However, hasty decisions often lead to regret. Start by allowing yourself time to understand the size and nature of your inheritance. Whether it’s cash, investments, real estate, or other assets, you’ll want to get a clear inventory before acting.
If the inheritance comes after the death of a loved one, emotions can complicate your judgment. In these situations, pressing pause for a few weeks or even months can help ensure that choices are made with a clear head.
Understand the Tax Implications
Not all inheritances are tax-free. While the federal government doesn’t impose an inheritance tax, some states do. Inherited retirement accounts, such as IRAs or 401(k)s, also have specific distribution rules that can generate taxable income.
If you inherit stocks or real estate, you’ll likely receive a “step-up” in cost basis, meaning capital gains tax is calculated from the asset’s value at the date of death, not its original purchase price. This can significantly reduce the tax burden if you sell soon after inheriting the property.
Create a Financial Plan for the Inheritance
An inheritance can be an opportunity to strengthen your financial position. A practical starting point is paying off high-interest debt. From there, you might consider:
- Building or replenishing an emergency fund
- Contributing to retirement accounts for long-term growth
- Funding education or career advancement
Working with an estate planning lawyer and a financial advisor can ensure that your plan accounts for your personal goals, risk tolerance and future needs.
Be Strategic with Real Estate or Business Interests
If you inherit a home or commercial property, decide whether to keep, sell, or rent it. Keeping a property often involves ongoing maintenance costs and tax obligations, while selling may trigger capital gains tax. For inherited business interests, understand your rights as an owner, potential buyout offers and your responsibilities if you choose to remain involved in the business.
A professional valuation can help you make informed choices, especially when multiple heirs are involved and the asset must be divided or sold.
Avoid Common Mistakes with an Estate Planning Lawyer’s Help
Many heirs make the error of treating an inheritance as “found money” and spending it quickly. Others invest it all in a single venture or asset without diversification, increasing the risk of loss. It’s also common to overlook updating your own estate plan to account for new wealth, potentially causing issues for your heirs in the future.
Taking the time to learn about your inheritance, weigh your options and consult professionals can make the difference between lasting financial security and squandered opportunity. If you’ve received an inheritance, now is the time to work closely with an estate planning lawyer to protect and maximize it for the long term. Attorneys Jayson Lenox and Caroline Daiker Stolzer offer a complimentary phone consultation to discuss your needs and concerns. Schedule your phone consult by clicking here.
Key Takeaways
- Pause before acting: Take time to understand the value and nature of your inheritance.
Know the tax rules: Different assets have unique tax consequences, and state laws vary. - Plan strategically: Use the funds to strengthen your overall financial health.
- Update your estate plan: Incorporate your inheritance into your own legacy planning.
Reference: Merrill Lynch “Q&A: How can I make the most of my inheritance?”
