We often only deal with an inheritance only a few times at most during our lifetime so it’s little surprise that we get questions all the time about receiving and leaving an inheritance. 

In this episode, Eric Hogarth, CFP® will address the major inheritance questions that are out and highlight some of the mistakes that are commonly made.

The first question that always comes up deals with taxes and what you owe on the money you received. Tax implications vary depending on the state you’re in, the type of inheritance received, and your relationship with the person who left it to you. When taking an inheritance, whether it is through a will or trust, there may be federal estate taxes or state death taxes that need to be paid. In addition, if you receive an inheritance in the form of cash or property, there may be income tax implications as well.

The SECURE Act changed the guidelines for inherited IRAs back in 2020, requiring all beneficiaries to take their distributions within 10 years. This means that if you are the beneficiary of an inherited IRA, you will have to withdraw it in full and pay taxes on any money taken out within a decade of the original owner’s death.

Another major question around inheritances is how to best manage the money received once it’s in your hands. Most people choose to invest the money, as this can help to increase the amount of wealth over time. However, it’s important to make sure that you have a plan for how and where you will allocate the assets so that you don’t end up losing money due to income taxes or bad.  investments.

Finally, one of the biggest mistakes people make is not considering the emotional aspects of inheriting or leaving money. If you are the recipient of an inheritance, it can be difficult to manage expectations and handle guilt if you decide to spend some of the money on yourself. On the other hand, if you are leaving an inheritance behind, it’s important to be clear about your wishes and make sure that everyone understands them.

Inheriting or leaving an inheritance is a big step, so taking the time to ask questions and understand the implications can save you from making costly mistakes down the road. If you have any further questions regarding inheritances, take advantage of our Money Map review process to get started.

Here’s what we discuss in this episode:

0:50 – Tax implications of the money you inherit

2:28 – How SECURE Act changed inheritances

4:50 – Estate planning mistakes we commonly see

6:19 – How we can help you with an inheritance