If you’re expecting an inheritance soon, it likely means you’ve lost someone important to you. Anticipating a windfall while grieving is part of what can make inheritance complicated. To make the receipt of your inheritance easier, take time to prepare for it, especially if the bequest is likely to be significant. Here are some key steps you can take.
Manage Your Expectations
Receiving an inheritance takes time. In fact, the disbursement of inheritances by the executor of a will is usually among the final steps in settling an estate. The executor must first notify beneficiaries and interested parties of the estate holder’s death, pay outstanding bills, close accounts and take inventory of assets to determine if any assets must go through the probate process. Finally, the executor must file with the IRS to pay taxes. Only then are inheritances distributed. The process can easily take several months. In particularly complex situations, or in cases where an estate must go through probate, it can take years.
The modern trend in estate planning is to avoid the probate process entirely by setting up a revocable trust as the primary vehicle to transfer wealth after death. Receiving an inheritance through a revocable trust streamlines many of the burdensome requirements involved in the probate process and may result in you receiving your inheritance quicker. But even if you are to receive your inheritance through a trust rather than a will, it will not be immediate, as the trustee still needs to pay outstanding bills, gather all the assets, close accounts and pay taxes, among other administrative items. The takeaway: If you’re expecting an inheritance, be prepared to exercise patience.
Make Plans for Your Inheritance
People can be less rational about how they spend an inheritance, simply because it feels like “extra” money. Feeling especially flush, an individual might reflexively agree to invest in a friend’s start-up business without examining its prospects closely. Or a person might lend money to distant relatives who suddenly show an interest. And then there’s the urge to splurge on things like travel or luxury goods. On the other extreme, some heirs, fearful of making bad decisions, let their inheritance sit too long in the bank, where it may slowly lose value to inflation. Your wealth advisor can help you make a sound plan for your inheritance and that plan can include a rewarding purchase.
Tap Professional Financial Advice
Your wealth advisor can help you align your inheritance with a long-term financial plan that’s based on your unique goals, time horizon and other factors. He or she can help you invest cash accordingly and can help you decide what to do with non-cash assets such as real estate, art or securities. Your wealth advisor team can also explain the tax implications of your inheritance, including whether it pushes your total estate into estate-tax territory. As of 2023, the value of an individual’s estate above $12.92 million is subject to federal estate tax.1 Your experienced, knowledgeable advisor can also serve as an objective sounding board throughout your journey as an heir.
Look Ahead to Your Heirs
The process of receiving an inheritance, which might include serving as the executor of an estate, should inspire you to think ahead to the eventual transfer of your assets and how you can make it a smooth one. We recommend keeping careful records of all your financial accounts as well as estate-plan documents such as trusts, a will and powers of attorney. The documents should be easily accessible to those you wish to administer your estate. You should include your family in your estate planning. Have conversations about specific assets and about the ultimate purpose of your wealth. Dive in now, even if it’s uncomfortable, so that your heirs fully understand and appreciate the wealth you’ll leave them.
The Impact of an Inheritance
Receiving an inheritance can change the trajectory of your life. If you’re already wealthy, it can help you provide even greater support to the people and causes you care about. Either way, mapping out a plan for your expected inheritance can help to ensure that it makes the biggest possible positive impact. Your wealth team, including estate planning and trust professionals, can help you plan ahead for how you will navigate this life event.
Footnotes:
This article is being provided for informational and educational purposes only and does not consider any individual personal, financial, legal, or tax considerations. The information contained herein is not intended to be personal legal, investment, or tax advice or a solicitation to engage in a particular strategy. Please consult a qualified professional regarding your personal situation prior to making any financial, legal, or tax-related decisions.
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