Receiving an inheritance is a common part of the estate process when a loved one passes away. Managing this inheritance requires careful planning and responsibility.
You might wonder, “How do I receive inheritance money without any issues?” This guide will help ensure the process goes smoothly.
Key Takeaways
Someone can receive inheritance money through a variety of ways, including from a will, a living trust, a joint owner, or an annuity.
A living trust often allows beneficiaries to receive assets more quickly and efficiently than other methods, as it avoids the probate process.
You do not need to report inherited assets to the IRS as income for federal taxes. However, any income generated from those assets – such as interest, dividends, or rental income – must be reported and taxed.
Understanding How an Inheritance Works
An inheritance is the assets that a person leaves to a beneficiary, and the assets are referred to as the estate. Inheritances typically include not only money, but also investments, property, jewelry, and family heirlooms.
When the loved one chooses someone to leave an inheritance to, they’re known as the beneficiary, and there can be more than one. Regarding how inheritance works, there are two common ways this is done: through a will and intestate laws.
If there is a will, it’s submitted to the probate court, where it is reviewed. After that, the court will typically authorize the executor of the will to transfer the assets to the beneficiaries as stated in the will.
If no will is available, the probate court will evaluate all assets and determine their value. The probate court will issue Letters of Administration to appoint an administrator to manage the estate. This can further extend the timeline for asset distribution, as the administrator must be officially appointed before taking over the estate. Without a will, the court takes on the role of assigning how assets will be distributed, which may not align with family wishes. Depending on what state you’re in, the laws may differ regarding inheritance.
Ways to Receive Inheritance Money Easily
When it comes to receiving an inheritance, there are many different ways, and some are easier than others. Some involve no probate, while others do.
Will
A will is the most common way of receiving inheritance money without any hassles. After your loved one has passed away, the executor of the will starts transferring assets to beneficiaries once the probate court has reviewed the will.
While this is an easy way of receiving inheritance money, it may not be the fastest. The probate process can vary in length depending on the complexity of the estate. Beneficiaries may be notified about their inheritance within three months after the probate court receives the will, but the actual receipt of funds can take anywhere from six months to two years, depending on the estate's complexity.
Living Trust
Receiving money from a living trust is another easy way to receive inheritance money without any hassles. This is because a trust protects the assets and results in a quick transfer to beneficiaries. When setting up the trust, you can appoint a loved one as a trustee to carry out all your outlined intentions.
While wills go through the probate process, which can be lengthy, trusts allow assets to be transferred outside of probate, often speeding up the distribution process considerably. Trusts are especially useful for complex estates and those looking to avoid probate delays. Many people create living trusts to maintain privacy, streamline asset distribution, and, in some cases, take advantage of tax benefits.
Danielle G. Van Ess, an attorney with over 20 years of trusts and estates experience, explains: “Trusts can help preserve relationships, incentivize healthy behaviors and lifestyles, encourage good stewardship of inherited wealth and may also help shield beneficiaries from losing the inherited wealth through divorce, lawsuits, unsuccessful business ventures and the like.”
Joint Owner
A joint account with your loved one will ensure an easy transfer of inheritance money to a beneficiary. Typically, banks will have rules about how it works, but after one account holder passes away, the ownership of that money passes on to the remaining partner or partners. This also means if the deceased had any outstanding debts, they will become your responsibility.
The bank account holder will need to set up a payable on death account, for which they will need to assign a beneficiary to the joint account. This way, you avoid involving probate court, and the money goes straight to the beneficiary. Different banks have their own requisition, and state laws may differ depending on where you live.
Beneficiary Designations
Receiving assets through a life insurance policy or retirement account is typically straightforward, as you are not responsible for the deceased’s outstanding debts, probate court is not involved, and life insurance payouts are generally tax-free. However, retirement accounts like IRAs or 401(k)s may be subject to income taxes when you withdraw funds.
Receiving money from retirement annuities follows a similar process, with funds going directly to the beneficiary. However, these funds may be subject to income taxes, especially if taken as a lump sum. Some retirement accounts are subject to certain rules. For example, if the beneficiary chooses to withdraw the money in installments, it must be done within 10 years of the deceased’s passing.
Intestate Succession
This way of receiving inheritance money is easy because the beneficiary receives the assets as determined by an external party known as the executor. This may result in receiving less than you expected, as the court distributes assets according to state law, not personal wishes.
Often, people mistake having a verbal agreement as the same as a written will, but this is incorrect. If there is no will, it’s up to the court to evaluate the value of the assets and determine if there are any outstanding debts before dividing up the assets. This can take a much longer time than you might expect, similar to the probate process.
How to Claim Inheritance Money
Now that you know how to receive inheritance money, how do you claim it? Here are some practicable steps to claiming inheritance money and what documents you need to have ready.
Gather Necessary Paperwork
Start by collecting all relevant documents, such as copies of the will, trust documents, insurance policies, and identity verification records. Using a trusted resource like Trustworthy to handle this can make this process much faster and more convenient.
Identify and Communicate with Relevant Parties
The key to claiming inheritance money without any hassles is keeping up to date with the proceedings and what you need to do. Communicating regularly with all relevant parties is the best way to do this.
This includes the executor of the will, attorneys and the estate lawyers. You should ensure you know who is handling what and keep in contact with them.
File Insurance Claims
After the deceased has passed away and you are a beneficiary of their insurance policies, you must file any insurance claims to receive the money. Before you do this, be sure you have all the relevant documents handy.
If you’re unsure about the process, contacting the insurance broker overseeing the policy is a good idea.
Review Any Debts and Liabilities
Before you can claim any inheritance money, you will need to check that the estate does not have outstanding taxes and bills. If outstanding amounts need to be paid off, the executor of the state will settle that before the money is transferred to you.
While inherited assets are generally not subject to federal income tax, some states impose inheritance taxes on beneficiaries, depending on their relationship to the deceased.
Tips to Claim Inheritance Money Fast
Claiming inheritance money can sometimes be a long process, especially if the probate court is involved. However, following these useful tips should help you claim it faster.
Regularly Communicate
Communicate often with all persons involved in the process. This means talking to the executor, the court, your family and the attorney.
Be clear in your questions and concerns, as a lack of communication can cause confusion over what needs to be done or what is happening. Confusion can lead to delays.
Delays can also result from disputes among beneficiaries or incomplete documentation. To avoid such issues, maintaining open communication and ensuring all documents are properly filed can help prevent setbacks.
Maintain Organized Records
Keep essential documents like the death certificate, will, estate planning documents, and tax filings organized. Missing or incomplete documents can cause delays in processing the estate and transferring assets to beneficiaries. Trustworthy can help you organize and securely store these documents.
Beware of Potential Scams
Be on the lookout for probate-related scams. Common scams include fraudulent "executors" contacting beneficiaries and asking for personal information or upfront fees, or false creditor claims made against the estate. Always verify the legitimacy of any company or individual claiming to assist with probate, and be wary of anyone offering to speed up the process for a large fee.
All the information will be with the executor of the will. If a business or individual offers a service that can drastically speed up the probate process for a large fee, this is most likely one of the many probate scams.
Be Patient and Persistent
One of the most important things to do when going through the process of claiming inheritance money is not to give up. The process may seem overwhelming at first, especially on top of grieving, and you may be tempted to give up. Don’t. Be persistent and remember you are allowed to ask for help.
Sometimes, the process can take a while, and when you know you’ve got a sum of money headed your way, waiting can feel impossible. But it is important to stay patient from start to finish.
Seek Professional Advice
You don't have to do this alone. Seek professional advice from qualified estate professionals to avoid confusion or mistakes that can lead to long delays and additional expenses.
Frequently Asked Questions
How do beneficiaries receive assets from a will?
The inheritance will be transferred directly to the beneficiary via their account after all relevant taxes and fees have been paid.
Can inherited assets be transferred directly into my account?
Yes, this can be done using a check or a direct wire to your bank account.
How much can you inherit before owing taxes?
For federal estate taxes, estates valued below $13.61 million are exempt from tax. However, some states impose inheritance taxes, which may apply to inheritances of smaller amounts, depending on your relationship to the deceased. Consult a tax professional to understand your specific situation.
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