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What to do if you inherit money?

July 22, 2021

At Reed Financial Planning Services, we often get calls from clients who find themselves inheriting money.  Individuals in this situation need to understand the rules, tax implications and options available for inherited assets.  If you find yourself inheriting investments or other assets, this article may be of help to you.  Feel free to schedule a phone consultation at the bottom of the page so we can answer any questions you may have.

Managing an Inheritance

Inheriting wealth can be a burden and a blessing.

Even if you have an inclination that a family member may remember you in their last will and testament, there are many facets to the process of inheritance that you may not have considered. Here are some things you may want to keep in mind if it comes to pass.

Keep in mind this article is for informational purposes only and is not a replacement for real-life advice, so consider speaking with a legal or tax professional before making any decisions with an inheritance.

Take your time. If someone cared about you enough to leave you an inheritance, then you may need time to grieve and cope with their loss. This is important, and many of the more major decisions about your inheritance can likely wait. You may be able to make more informed decisions once some time has passed.

Don’t go it alone. There are so many laws, choices, and potential pitfalls – the knowledge an experienced professional can provide on this subject may prove critical.  Our advisors at Reed Financial Planning Services have years of experience in helping people like you when they inherit assets.

Think of your own family. When an inheritance is received, it may impact your financial plan. Be sure to take that into consideration.

The taxman may visit. If you’ve inherited an IRA, it is important to consider the tax implications. Under the SECURE Act, distributions to non-spouse beneficiaries are generally required to be distributed by the end of the 10th calendar year following the year of the account owner’s death.

It’s also important to highlight that the new rule does not require the non-spouse beneficiary to take withdrawals during the 10-year period. But all the money must be withdrawn by the end of the 10th calendar year following the inheritance. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.

Stay informed. The estate laws have seen many changes over the years, so what you thought you knew about them may no longer be correct.  

Remember to do what’s appropriate for your situation. While it’s natural for emotion to play a part and you may wish to leave your inheritance as it is out of respect for your relative, what happens if the inheritance isn’t appropriate for your financial situation? A financial professional can help determine if the inheritance fits with your overall goals, time horizon, and risk tolerance.

Update your Financial Plan.  It's important to understand how inherited assets fit into your income and retirement plan.  Make sure you update your Financial Plan to include your inherited assets as it will likely change your portfolio and income plan.

Your next steps.  It's often helpful to work with a financial planning firm that has experience in helping people like you understand the rules and guidelines regarding inheriting assets.  Legacy planning and estate planning are two areas of focus at Reed Financial Planning Services.  We would be happy to help.  Click on the link below to schedule a phone consultation with one of our advisors.

Click here to schedule your phone consultation