Planning to Receive an Inheritance
Estate planning makes most people think about preparing accounts and property for loved ones. The goals include working in a tax-efficient way. Tax advisors protect clients from probate and disgruntled heirs. Also, they watch out for beneficiaries’ creditors, divorcing spouses, bankruptcy, and more. Finally, they try to prevent poor spending habits and other beneficiary mistakes from overtaking assets. However, we rarely consider preparing to receive an inheritance.
Inheritance Tips
Believe it or not, you should make sure you consider essential things if you anticipate receiving an inheritance. Thus, understanding these issues protect the inheritance from unnecessary taxes and outside threats. For example, without assistance, heirs face a myriad of obstacles such as creditors, divorcing spouses, and bankruptcy.
The Nature of Inheritance Property
The first way to prepare for an inheritance is to find out what you will inherit. For example, is it real estate, a 401(k), or an individual retirement account (IRA)? Therefore, perhaps your deceased loved one left you publicly traded stock, an interest in a family business, or cash from a life insurance policy.
SECURE Act Inheritance Implications
Take these steps today to plan to receive and manage your inheritance properly. For example, if your loved one left you a large IRA account, learn the new rules associated with inherited IRAs. These recently changed because of the SECURE Act passed in late 2019. Also, educate yourself about how to maximize tax benefits available under the law regarding required distributions. Unless you understand these complicated rules, you could make an irreversible mistake. For example, you could withdraw all of the IRA funds at one time. This would substantially increase your tax liability in the year of withdrawal. In fact, a tax advisor or estate attorney can explain a variety of nuances to these rules.
Inheriting Rental Property
If a loved one leaves you rental property, consider yourself a landlord. Would you want to operate such a venture? If not, prepare to find a buyer for the property. Someone could offer you a fair price at the onset. Or, at the very least, look into hiring a property manager as soon as you inherit the property.
Powers of Appointment (POA)
If a loved one completes trust planning, they could establish an Irrevocable Living Trust (ILT) for you. Such trusts frequently include powers of appointment. A power of appointment in a trust is a right often given to the beneficiary of the trust.
Powers of Appointment
These powers apply to making gifts to only certain classes of people. These may include the descendants of the trust makers. Or they may apply only to making gifts at death. For example, a testamentary power of appointment or during life (a lifetime power of appointment). Some trusts include both types of powers. These powerful planning tools give you access to trust documents. Failure to recognize these powers often leads to unintended consequences. Or, at the very least, you could miss crucial asset protection and tax-planning opportunities.
Power of Appointment
If you know that you have been granted a power of appointment, you should attempt to obtain a copy of the relevant trust documents to carefully review and determine the nature of these powers. So, an experienced estate planning attorney can help you with this task. Therefore, with this information, your professional advisers can properly advise you on the planning opportunities and tax consequences of the powers of appointment that may be available to you.
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.
