How to handle an inheritance
If you are lucky enough to inherit money, you should be smart enough to know how to handle it. Inheritances are not just free money. Inheritance taxes are separate from estate taxes imposed by the federal government and many states, and if you do not pay your inheritance tax, your state may not be happy. The Internal Revenue Service collects the estate tax on all U.S. citizens and residents. The tax is levied on the deceased's estate as a whole, filed on a single estate tax return and paid out of the estate's funds. The U.S. government imposes no inheritance tax. However, many states do.
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States often impose an inheritance tax on beneficiaries who receive property from the deceased, and may take the place of estate taxes, or they may be separate and in addition to. Inheritance tax is not paid out of the estate, or by the deceased person, rather each beneficiary is responsible for the inheritance tax on what they inherited. In many states spouses and children of the deceased get a tax break, whereas other heirs may have to pay a higher amount.
It is possible that the deceased specified in their will that they want their estate to cover the inheritance tax, but if they did not, then it is up to you to pay the taxes.
Beyond the taxes, what should you do with money that you inherit?
Most financial experts agree that when you inherit money you should not touch it for at least six months. This gives you time to grieve properly, and not make emotional decisions with the money. In addition to that, it allows you time to figure out if you owe any taxes, etc.
Next, determine if you need any financial advice. Because it is possible to inherit large sums of money, depending on the size of the estate of the deceased, it would be wise to seek help if it is more money than you have dealt with before. If the amount you inherit exceeds 5% of your gross annual income, then get an accountant, money manager, lawyer, or some other professional to help you protect that money, invest it, or use it most wisely. when looking for a financial advisor, look for someone that is near enough to you that you can meet with them in person. Look for someone close to your age and that holds similar money values as you. You do not want to be treated like a spoiled child, so make sure you choose carefully.
What you do with the money from there is up to you, but giving yourself a chance to leave emotions out of it, and hiring someone to help you invest or use it wisely is going to make getting an inheritance a much better experience. Do not forget to pay your taxes so you do not end up having to sell your car or home later to afford the taxes.
