Inheritance
An inheritance is something that passes on to you when someone dies. In order for you to take possession of the inheritance legally, the person must have deeded it to you through a will or living trust. It usually consists of a sum of money or a piece of property that has some monetary value. Quite often, receiving an inheritance is a time of mixed emotions. You are sad that this person has died, yet happy about the extra money that you have. It is quite common for people to go on a spending spree with the extra funds and then find they don’t have enough money left over to pay the taxes.
If you are the recipient of an inheritance, the best advice is not to do anything with it for a while. You need to give yourself time to adjust and think about what you plan to do. Unless you are in a desperate financial situation, experts advise that you should not touch an inheritance for at least six months. If the person that left you the inheritance was a parent or close relative, you need time to grieve and get over the loss.
Some people have the inheritance money they plan to give to their children or grandchildren in a trust. If the inheritance you receive is in a trust, you should leave it there for a while. If there is a will involved, the estate will have to go through probate, which could take several months. If the inheritance is quite large, you would be wise to seek the help of a financial advisor. An inheritance is considered large, if it exceeds 5% of your gross annual income. If the amount you receive is just enough to allow you to take a vacation or pay off some of your bills, then use the money for that purpose. Any more than that, you will need help investing the money so that you can realize the greatest benefit from it and make more money.
If there is a sizable estate, there may already be a financial advisor in place. This person knows the ins and outs of the estate and would be a perfect person for you to rely on for continued advice. After all, it was he/she who helped get the estate to the size it is now. Most of all, you have to feel comfortable with this person in order for you to be able to work with him/her.
When you choose an advisor for a large inheritance, the first question you need to ask is what plans they might have to make the estate even larger. Some advisors prefer to deal with small inheritances and may not be able to handle your account, but he/she will be able to recommend another advisor for you.
You will have to pay taxes on the estate, which means that you will have to file an additional tax return within nine months from the date of death. On an inheritance tax return, you will have to list all the properties and monies that you inherited, as well as a list of debts and liabilities. The difference between the two is the gross estate. However, you won’t have to pay taxes on this total amount. A surviving spouse is not liable for any tax and a child is exempt for $50,000. There are other specifications in the law, as well, that provide for other exemptions. Although you may have to pay some tax on the inheritance, it won’t be so much that you won’t have extra money to spend and enjoy.
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2008-04-07 12:21:18
Probate is the legal process of settling a deceased person's estate, which includes paying creditors or debts, and distributing the assets of the deceased to the correct beneficiaries. It is a complic ... [read more]