James Zahansky, AWMA®
Principal/Managing Partner, Investment Advisor & Chief Goals Strategist
Of all the financial strategies that many people have in place, an inheritance strategy is usually not one. Discussing estate planning amongst family members can be uncomfortable even with the best relationships, let alone discussing what you may be inheriting after your loved one is gone. But having a plan in place ahead of time can make a huge difference, not only for you but for the loved one leaving the inheritance.
Losing a loved one is difficult emotionally and logistically; having an inheritance strategy in place means there will be one less thing to worry about when you’re already under stress. For your loved one, knowing that you’re prepared to make the most of the wealth they’ll be handing down to you can offer great peace of mind and satisfaction that their gift will have the best possible impact on your life. To get you started on thinking about your own inheritance strategy, here are just a few of the most important things to consider.
Inheritance With A Will
Having a will in place helps designate beneficiaries and determines who receives what. Wills can help avoid probate court's costly and time-consuming nature, although it may not prevent it entirely. Of course, a will doesn’t prevent anyone from contesting it, but it does tend to make things easier. Knowing if you are one of the designated beneficiaries—and having an idea of what that inheritance looks like—can help you plan for what happens when you inherit cash or other assets.1
When No Will Exists
Not having a will can make receiving an inheritance painful. Sorting out an estate can result in steep legal fees, dealing with probate, and potentially fighting with family and friends. If you’re not sure exactly what the estate entails, it could take months or years to track everything down. Then there’s the personal cost. Even if everyone agrees on how the estate should be settled, the process often takes a financial, mental, and emotional toll.2
If there are assets other than cash to divide up, sorting through an estate without a will becomes exponentially more complicated. Life insurance, real estate, and assets other than cash may be subject to different inheritance rules. Spouses often receive additional tax breaks and incentives for an inheritance, and many adult children and other relatives don’t have that luxury.2, 3
Creating an inheritance strategy also allows you to help make sure your loved one’s estate is in order. You don’t want to wait until after your loved one is gone to discover, for example, that an ex-spouse is still listed as a beneficiary on a life insurance policy.
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The Pitfalls of Inheritance
While many of us dream of a lump sum of cash falling into our laps, the reality of inheritance can be a little less rosy. Cash typically doesn’t fall under the heading of taxable income, but if you received that income in the form of royalties or the deceased’s company bonus, that might have the IRS view this as a source of income.4 Inheriting real estate means that you now have a property that requires maintenance and upkeep as long as you hold onto it. And while it used to be easy to shelter stocks and mutual funds into a so-called “stretch IRA,” the SECURE Act abolished this option for everyone but a surviving spouse or minor child.5
Don’t Quit Your Day Job
Just because you’ve received a large inheritance doesn’t mean it’s time to quit your day job and retire to luxurious living on a tropical island. According to the National Endowment for Financial Education, an estimated 70% of people who receive a large inheritance spend it all within a few years.2 Having a plan can make it easier to stay on track before the temptation to spend hits your bank account.
Even in the best circumstances, dealing with an inheritance can be complicated. Remember, even if you’re not expecting a large amount of money or property from an estate, it still behooves you to have a strategy in place. It’s important not to make any significant decisions or to suddenly change your spending habits just because more assets are now available to you. Working with a skilled financial advisor knowledgeable about the ins and outs of inheritance can help make sure your inheritance is working for you, not against you.
If you’d like help with managing your inheritance, get in touch with us at Weiss, Hale & Zahansky Strategic Wealth Advisors. We act as fiduciary wealth management advisors to help our clients build and pass along wealth to future generations through our Plan Well, Invest Well, Live Well™ process. You can request a complimentary consultation on our website or call us at (860) 928-2341.
Presented by Principal/Managing Partner James Zahansky, AWMA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.