What happens when you inherit money?
What happens when you inherit money?
A loved one died recently and you know you’re going to get an inheritance from them, but what happens next?
Understanding how and what you will inherit can be difficult. It’s made worse when you have poor communication with the estate executor, your loved one left a logistical mess behind, or you’re too deep in grief to focus on details.
If you’re struggling to figure out what happens when you inherit money, I’ve got you covered.
Posted on May 7, 2024 by Katherine Fox.
What happens when you inherit money?
After inheriting money, you may be waiting for months or even years before taking possession of what you inherited. How long you wait will depend on what assets you inherited, how those assets are being inherited, and the size of the estate from which you are inheriting.
If loved one died recently and you know you’re going to get an inheritance, you might be wondering:
What are the steps that need to happen before I inherit money?
When will I receive inheritance money?
How will I receive inheritance money?
What happens if I am inheriting money from a will?
What happens if I am inheriting money from a trust?
What should I do after inheriting money?
Understanding how and what you will inherit can be difficult.
It’s made worse when you have poor communication with the estate executor, your loved one left a logistical mess behind, or you’re too deep in grief to focus on details.
If you’re struggling to figure out what happens when you inherit money, I’ve got you covered.
I’m Katherine and I’m a CFP® and investment advisor for inheritors.
I’m here to help you through this journey, whatever your needs are.
If you’re trying to get up to speed, check out the 20 Terms Inheritors Need to Know.
And if you’re deep in the weeds and don’t know what to do next, schedule a FREE consultation to see how I can help you manage your financial life and navigate a current or future inheritance.
What are the steps that need to happen before I inherit money?
To receive money from an inheritance, the estate you are inheriting from must be settled.
Settling an estate refers to the legal and financial process of distributing a deceased person's assets in line with their estate documents.
Three primary steps must happen before beneficiaries can receive their inheritance. The estate executor or administrator manages these steps:
Entering probate or trust administration
Identifying, locating, and valuing a deceased person’s assets
Paying estate debts and taxes
The estate settlement process is more involved than these three steps, but they are the primary tasks that need to be accomplished before beneficiaries can start to receive their inheritance money.
What happens when you inherit money?
When you receive inheritance money depends on the asset you inherited, the size and complexity of the estate you are inheriting from, and how the asset is transferring to you.
Some assets, like IRAs, 401(k)s, life insurance proceeds, and “Payable on Death” or “Transfer on Death” accounts can transfer to beneficiaries in a matter of weeks or months.
If these accounts have current and correct beneficiary designations, they pass outside of the probate process directly by contract.
If you inherit from one of these accounts, you may receive part or all of your inheritance in the months after your loved one passed away.
When will I receive inheritance money?
Assets passing through the probate process, which may include real estate, investment accounts, or checking/savings accounts may not be received for months or even years after your loved one passes away.
The time it takes to receive these assets will depend on the complexity and size of the estate you are inheriting from.
If you are inheriting from a complex or large estate that is subject to Federal or State estate or inheritance tax, you will need to wait for all assets to be valued before you inherit. This process can take months or years depending on the assets in question.
It is relatively easy, for example, to get an appraised value for a house in a major metropolitan area.
It is more difficult to value 100 acres of farmland, artwork, or classic cars.
Assets inherited through a trust may come to you more quickly than assets subject to the probate process.
However, assets passing through a trust are generally still subject to the same valuation requirements that can slow down the inheritance process with probate assets.
If the estate you will inherit from is subject to an estate dispute or litigation, it could drag out the timeline for you to receive your inheritance by several years.
“After you inherit money, the first and most important thing you should do is put it in a safe place and take time and space before making any major decisions.
Making decisions when you’re still reeling from grief is one of the most common ways that inheritors waste their inheritances and make decisions they regret in the ensuing months and years. ”
How will I receive inheritance money?
How you receive inheritance money depends on the asset you are inheriting.
IRA or 401k account
These accounts will be moved into an account in your name. You will hold the same investments your loved one owned in the account when they passed away.
You will have a new inherited IRA account that you are now responsible for managing.
Checking or Savings account
You will receive a check, wire transfer, or ACH with the money held in the decedent’s checking or savings accounts.
Investments
You will receive a journal transfer of the securities and cash held in the decedent’s investment accounts.
These securities will be transferred into a new brokerage account held in your name.
If you inherited physical stock certificates or bonds, they will be sent to you.
Assets sold by the estate
If the estate executor decides to sell property or investments, you will receive any proceeds you are entitled to via a check, wire transfer, or ACH.
What happens if I inherit money from a will?
If you inherit money through a will, your inheritance may be subject to the probate process.
Probate is a legal process in which a state court oversees the distribution of assets from a deceased person’s estate. It can significantly increase the time and expense associated with settling an estate.
Not all estates pass through the probate process. It depends on the state you live in and the estate’s total value.
If you inherit money from a will, you want to ask the estate executor or administrator the following questions:
Can I see a copy of the will?
What assets or accounts am I inheriting?
What is the estimated value of the assets or accounts I am inheriting?
Will the estate be subject to probate?
How long will it take for assets to be distributed from the estate?
What happens if I inherit money from a trust?
If you inherit money from a trust, your inheritance may avoid the probate process.
You may be inheriting from a trust, in which case inherited assets held in trust will be distributed outright to you when the estate is settled.
Or, you may be inheriting through a trust, in which case inherited assets will continue to be held in trust and managed by a trustee for the benefit of you and other beneficiaries.
Inheriting from a trust and avoiding probate may or may not speed up the timeline to receive your inheritance, depending on the size and complexity of the estate you will inherit from.
If you inherit money from a trust, you want to ask the estate executor or administrator the following questions:
Was this a revocable or irrevocable trust?
Who is the trustee?
Can I see a copy of the trust document?
When do you expect the trust will start distributing assets?
When will I receive distributions from the trust? Will there be any immediate distributions?
Under what conditions can I receive distributions from the trust?
What should I do after inheriting money?
After you inherit money, the first and most important thing you should do is put it in a safe place and take time and space before making any major decisions.
Making decisions when you’re still reeling from grief is one of the most common ways that inheritors waste their inheritances and make decisions they regret in the ensuing months and years.
Once you feel mentally and emotionally ready to make decisions regarding your inheritance, I recommend inheritors take the following steps:
1.lPay off all high-interest (>5%), non-mortgage debt: credit card debt, student loans, personal loans, or other debt.
2. Spend 3-5% of what’s left of your inheritance on something fun for you. This shouldn’t be a practical purchase. It should be something fun and frivolous that makes you feel happy. If you were close to the person who passed away, spend this money on something they would have liked and appreciated.
3. Give 3-5% of what’s left of your inheritance away. This could be philanthropic giving to non-profits, personal giving to individuals or community members in need, or political giving to causes or candidates you support. Again, if you were close with the person who died find a cause you both support and consider making this gift in their memory.
4. Use what is left to support your long-term life goals and vision for the future. If you don’t need money now, that may mean putting it into a high-yield savings account or other, long-term investment vehicle.
If you don’t know how to invest your inheritance to help you reach your future goals, reach out to Katherine to schedule a FREE consultation to learn more about how Sunnybranch can help you build a plan to manage and grow your inheritance in line with your values.
Let’s take the next step together
Understanding what happens when you inherit money is not easy. Beneficiaries can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can download The 20 Inheritance Terms You Need to Know, or reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you build a plan to manage and grow your inheritance in line with your values.
