When You Inherit
A practical guide to the money side of inheriting from a parent.
Losing a parent is hard enough. Then comes the paperwork, and often decisions about money you didn't expect to be making yet. Some of those decisions have deadlines and tax consequences. Many others can wait.
This guide walks through what to understand first, what to ask about, and what you can take your time on. Check things off as you go, and bring your questions to the estate's attorney, a tax professional, or a financial advisor.
First: how each asset reaches you
Not everything passes through the will. How an asset was set up decides how, and how fast, it gets to you.
Accounts with a named beneficiary. Retirement accounts, life insurance, annuities, and accounts marked "payable on death" or "transfer on death" usually go straight to the people named on the form. Contact each company directly with a death certificate.
Assets in a trust. These follow the trust's instructions, handled by the trustee.
Everything else. Assets in your parent's name alone usually pass through the will and the probate court, handled by the executor. This can take months.
Find out who the executor or trustee is. If it's you, the estate's attorney can walk you through your duties. That role is separate from being a beneficiary. If the estate doesn't have an attorney yet, we're happy to share some names.
Keep good records. Save every statement, letter, and form you receive. You'll need them for taxes later.
Inherited retirement accounts
Inherited IRAs and 401(k)s come with their own rules about how and when the money has to come out, and some of those rules have deadlines. A quick decision here can be hard to undo, so get advice before you move or withdraw anything.
Don't cash it out right away. How and when you take money out can change what you owe.
Ask how the account should be moved. Inherited accounts are usually set up differently from your own retirement accounts, and the way the money moves matters.
Ask about timelines. There may be deadlines for emptying the account or for taking withdrawals along the way, depending on your situation.
Talk with a CPA before deciding. A tax professional in your state can explain the rules that apply to you.
Taxes on what you inherit
Different kinds of inherited assets are taxed in different ways, and the rules also vary by state. Before you sell, withdraw, or spend, it's worth knowing what applies to you.
Ask about each type of asset. Investments, property, life insurance, annuities, and retirement accounts can each be treated differently for taxes.
Keep date-of-death values. Get the value of each investment and property as of the date of death in writing, and keep it. A tax professional will likely need it.
Ask whether your state has an inheritance tax. Some states do, and the rules depend on where you and your parent lived and your relationship.
Work with a CPA in your state. They can tell you what you'll owe and when. If you don't have one, we're happy to share some names.
The house, and sharing with siblings
The family home is often the hardest asset to decide on, and the one most likely to strain relationships.
Keep it insured and maintained. Tell the insurance company the owner has died. A vacant house can need a different policy, and a gap in coverage can be costly.
Know what it costs to hold. Taxes, insurance, utilities, and upkeep continue while you decide.
Talk through the options together. Sell it, rent it, or have one sibling buy out the others. Get an appraisal so everyone is working from the same number.
Put agreements in writing. If one person lives there or pays the bills, write down who pays what and how it gets settled later.
Treat each person's share as theirs. Siblings often make different choices with their inheritance. That's normal, and it doesn't have to be decided as a group.
What can wait
An inheritance can feel like it needs a plan right away. Most of it doesn't. A safe, easy-to-reach account is a fine place for money while you think.
Big purchases or paying off everything at once. Decide once you see the whole picture, including taxes.
Lending or giving money to others. People may ask. It's fine to say, "I'm not making any decisions yet."
Changing your parent's investments. You're free to keep your parent's investments and advisor or make a change. Take time to understand what you have first.
Quitting work or retiring early. Run the numbers before counting on the inheritance to replace income.
Feeling you have to use it the way your parent would have. Honoring them can look many ways. Give yourself time.
If you have questions
If something in here raises a question, I'm happy to talk it through.
Melissa Blaszczyk, Calibri Financial (845) 978-6201 · melissa@calibrifinancial.com
This guide is for general education only. It isn't legal or tax advice. Tax rules and inheritance laws vary by state and situation and can change, so check with the estate's attorney or a tax professional about your own circumstances.