People associate estate planning with preparing accounts and property for loved ones. Most strive to do so in a tax-efficient way that protects their heirs from probate. Therefore, they may even expect to confront beneficiaries’ creditors, divorcing spouses, bankruptcy, and the poor spending habits of children or other beneficiaries. However, we rarely consider all that is involved in preparing to receive an inheritance of our own. This blog tackles that subject.
Inheritance Expectations
Most people fail to realize that they must consider several items while anticipating the receipt of an inheritance. Understanding such issues protects the inheritance from unnecessary taxes and outside threats like creditors, divorcing spouses, and bankruptcy.
Understanding the Nature the Inheritance
The first way to properly prepare to receive an inheritance is to discover what you will be inheriting. Is it real estate, a 401(k), or an individual retirement account (IRA)? Perhaps it is publicly traded stock, an interest in a family business, or just simply cash from a savings account or life insurance policy.
Steps to Take Before Collecting an Inheritance
Taking these steps today will help you collect and manage an inheritance properly. For example, if your loved one left you a large IRA account, understand the new rules associated with inherited IRAs relative to the SECURE Act.
Otherwise, educate yourself about maximizing tax benefits available under the law regarding required distributions. If you fail to understand these complicated rules, you could make an irreversible mistake. For example, you could withdraw all of the IRA funds at one time, substantially increasing your tax liability in the year of withdrawal. A variety of nuances to these rules could trip you up. A qualified tax adviser or attorney can help you navigate the situation.
Rental Property Assets
If someone leaves you rental property in an inheritance, consider the complicated life of a landlord. First, you may not want to operate such a venture. If not, prepare to find a buyer for the property. Or, at the very least, you might look into hiring a property management company.
Powers of Appointment
Did your loved one complete trust planning establishing an irrevocable trust for you? Such trusts frequently include important features referred to as Powers of Appointment. A power of appointment gives rights to the beneficiary of the trust. So, it allows them to give the trust property to someone else. Thus, these limited powers pertain to making gifts to certain classes of people. Or they may be limited to making gifts at death (a testamentary power of appointment) or during life (a lifetime power of appointment). Some trusts include both types of powers. Finally, these powerful planning tools that come through trust documents. Failure to recognize these powers may lead to unintended consequences. Or at the very least, you could miss crucial missed asset protection and tax-planning opportunities.
If someone grants you a power of appointment, try to obtain a copy of the relevant trust documents. Then, carefully review them to determine the nature of these powers. Also, an experienced estate planning attorney can help with this task. Armed with this information, professional advisers can help you capitalize on planning opportunities.
About Skvarna Law in Glendora & Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. Also, we provide legal services. We cover San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma.
