An inheritance is often more than just a financial windfall – it can range from a meaningful and deeply sentimental farewell from a loved one to an opportunity for a significant turning point in the trajectory of the beneficiary’s life. But with the inheritance of wealth comes immense pressure, as well as
responsibility – especially if you have a family of your own. Do you preserve wealth? Make it “work” for you? Turn it into a family fortune? Or take the opportunity to chase a personal dream?
We cannot tell you what to do with your money. But what we can do is illuminate and illustrate some of the possibilities – as well as certain crucial considerations, and potential consequences.
In today’s guide, we will walk you through the steps needed to develop a sound financial strategy, meant mostly to preserve, and grow your inheritance, take heed of any local or federal tax considerations, and the steps needed to preserve wealth for future generations.
What are the contents and implications of your inheritance? Generally speaking, anything material can be inherited. There’s very little we can truly take to the grave with us, so most “things” – whether they’re tangible like a family heirloom, or intangible like the deed to a warehouse – must be distributed
among the living when we pass away.
As such, an inheritance can be classified as either:
Once you have a better idea of what it is that you inherited, you can begin to assess its value and personal implications. Property, for example, comes with the caveat that owning it means managing it, and paying for it. Even as a homeowner or landowner, there are property taxes to pay, and annual upkeep and maintenance costs. The contents of a bank account or the remainder of a 401(k), on the other hand, will usually have fewer strings attached.
Not all inheritances are distributed equally. Sometimes, your ownership in a piece of land may be shared with other eligible kin. Or sometimes, the contents of a life insurance policy are handed out piecemeal through a living trust.
Federally-speaking, an estate – that is, the belongings of a decedent – may need to pay an estate tax if the total value of the estate eclipses the decedent’s remaining lifetime estate tax exemption limit. However, states may impose their own estate taxes, with their own tax rates and exemption limits.
Some states also impose an inheritance tax, meaning the recipient of the inheritance must allocate a portion of the inheritance’s value as tax to the state tax authority. Very few states have both an inheritance tax and a state estate tax. Beware of your state’s rules, and how they might have an impact
your specific inheritance.
A windfall is a windfall, and certain circumstances will always be more dire than others. If an inheritance happens to come at an opportune time, then your thoughts of preserving the family wealth and creating an intergenerational fortune might be eclipsed by more immediate worries. There’s nothing to be done about that. Debts and outstanding costs will always take priority.
But if you have the luxury of thinking about your inheritance in the long-term, then the keyword here is investment. Whether that means diversifying your personal portfolio through a selection of funds and stocks, commodities, and securities, or allocating a portion of it to growth and using the rest of it as
capital for a business proposition, it is wisest to consult a financial and tax advisor and go over your circumstances in detail.
Even if your inheritance will mainly be used to plug proverbial financial holes, it may still be worth your time to speak with a financial professional to strategize your debt repayment plan, and perhaps make the most of what might be left afterwards.
When it comes to investments, especially long-term investments, consistency is key. There’s little use in throwing half your inheritance away on speculative items, such as up-and-coming cryptocurrencies or an unstable commodity. While stable commodities and industries with low but constant growth are far less potentially lucrative, their consistency will pay massive dividends over the course of 20, 30, or 40 years.
Diversification is also important. Even consistent investments can ebb and flow like the tides. Keeping your eggs in a number of different baskets means additional security for your long-term investment plan.
Exchange-traded funds are a popular item for many newcomers in the world of investment. They are flexible, highly diversified, and cost-effective. It does not matter whether you want to allocate a few hundred dollars or several tens of thousands of dollars to a number of different ETFs – there are benefits
for any class of investor.
However, there is no such thing as a risk-free investment. Diversity is key, but it also pays to work with someone who might have more experience in flexible investment strategies. If you can afford to set a portion of your inheritance aside, consider a living trust under the management of an experienced
trustee. Which brings us to:
At least some of the fun of having an inheritance is being able to use that money. But what happens to the money if something happens to you? Estate planning involves creating contingencies to ensure that everything you own is distributed and managed in a way that you see fit – and that your end-of-life
decisions are clearly outlined, signed, and witnessed on paper.
If you’ve freshly inherited and are thinking about long-term investment strategies, it also pays to consider long-term estate planning strategies. A will is crucial. A will allows you to put to writing how you would want your estate to be distributed in probate court. But for certain funds, accounts, or assets, it may be a good idea to employ other estate planning tools, such as a trust, for additional flexibility or to ensure that your wealth is in good hands until your next-of-kin are financially and emotionally stable enough to take over.
No modern guide on inheritances and estate planning would be complete without a mention of the digital world. We live in a day and age when nearly every American has a smartphone, and an overwhelming majority have email accounts, social media accounts, cloud storage accounts, subscription services, and much more.
Prepare a document for your estate plan detailing the login information to your most crucial accounts, and instructions for their management or termination, as well as the management and/or termination of your personal data on workstations, personal computers, devices like tablets and smartphones, or other technology.
Receiving an inheritance should provide the impetus to think clearly about your own financial future, and the legacy you mean to leave behind. We at Werner Law will help you through each step of the way.
Founded in 1975 by L. Rob Werner and serving California for over 48 years, our dedicated attorneys are available for clients, friends, and family members to receive the legal help they need and deserve. You can trust in our experience and reputation to help navigate you through your unique legal matters.
Whether you need help creating a living trust or navigating probate, our living trust law firm's compassionate team of estate planning lawyers and probate lawyers are here to help you and ready to answer your questions.
Our goal is to make your case as easy as possible for you. Hiring a lawyer can be a daunting task, but it doesn’t have to be. From the moment you contact our firm, through the final resolution of your case, our goal is to make the process easy and understandable. We cannot change the fact that probate is a long and complicated process, but through our Werner Law Firm Difference, we strive to go out of our way to keep you informed of your case through every step of the way. We are constantly refining our processes and procedures for a more streamlined and calm client experience. Our goal is to have you feel like a burden was lifted from your shoulders, and that we made the whole process an easy one
If you're dealing with a legal matter, we urge you to schedule a free initial appointment today and join the many satisfied clients who have contacted Werner Law Firm.
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