Inheritance money is usually a bittersweet experience. While everybody enjoys receiving money, no one enjoys receiving cash because someone died. However, inheritance money can drastically change your life or improve your financial well-being – as long as you manage it wisely.
Inheritance money usually has to undergo the probate process. Unless the decedent executed an irrevocable life insurance trust or living will, all assets and personal belongings are transferred to probate.
During probate the decedent's assets must be accounted for through documented inventory. Financial holdings are frozen to ensure all outstanding debts, taxes, liens or judgments are paid in full before distribution is made to beneficiaries.
If the decedent executed a Will, probate generally takes six to nine months to settle. However, if the decedent died intestate (without a Will) or if any heirs contest the Last Will and Testament, probate can drag on for years. When this occurs, estate funds can quickly dwindle and eradicate inheritance money intended to be gifted to heirs.
There are several ways to keep inheritance money out of probate. Transfer-on-death (TOD) beneficiaries can be designated to retirement and investment accounts. Payable-on-death (POD) beneficiaries can be assigned to checking and savings accounts.
Real estate, motor vehicles and water craft can be titled jointly. For instance, if the decedent owns a car and wants to gift it to his son, he could title the vehicle in his name and his son's name. Upon the decedent's death, the son can transfer the title into his own name by presenting a copy of the title and death certificate.
Inheritance money can also be gifted to recipients while the decedent is still alive. Individuals are allowed to gift up to $12,000 per person, per year or $20,000 per married couple. Gifting inheritance money in advance ensures intended recipients receive the cash and avoid probate.
Once inheritance money is received, it is important to establish an investment strategy. When decedents leave their retirement accounts to beneficiaries, these designated individuals would be wise to rollover the account and keep assets in place. However, beneficiaries can transfer 401k and investment holdings into a new account or cash-out and use the inheritance money for business or financial investment opportunities.
When receiving inheritance money, it is important to avoid the temptation of going on a spending spree. Oftentimes, beneficiaries who are grieving attempt to fill the void by spending their inheritance on material things they really do not need.
Instead of engaging in frivolous spending, create a plan for the future. There are many investing opportunities that can be used to grow inheritance money. We invite you to learn more about investment strategies, estate planning and probate in our comprehensive inheritance article library.