When someone close to you dies, you may receive an inheritance from their estate. This can be a blessing, but it also runs the risk of being a curse if you do not handle your finances correctly.
Here are some tips to consider about what to do if you inherit an estate.
What is an Inheritance?
Inheritance is the combination of cash, property, investments, and other assets that someone may receive from someone they are close to after they die. These assets are left as part of the deceased person’s estate.
For example, when someone’s parents or grandparents die, they may receive an inheritance that includes some or all of those assets. Sometimes the inheritance is defined in a will that was left by the deceased person describing how their assets should be distributed. Other times the inheritance is divided up under state laws that govern estates.
If there is no will left describing how the assets should be distributed, then the estate becomes intestate. This means that there may be less control over how the assets are distributed. Each state has different laws related to how to handle intestate estates in probate court.
How Is an Estate Handled When There Is a Will?
When a will identifies you as a beneficiary of an inheritance, there is typically an executor named who will administer the wishes of the deceased as outlined in the will. The executor, who may be a lawyer or a trusted relative, follows a process to execute the wishes identified in the will.
First, the executor conducts an inventory of all of the deceased person’s assets. They will gather important financial and legal documents related to the deceased person’s finances and assets, including financial statements, property deeds, car titles, insurance policies, and a list of real property such as jewelry, collectibles, and other valuables. The executor also must collect all of the bills that must be paid by the estate. While a house and a car typically are the largest assets most people own, the third most common and expensive asset purchased in a lifetime is furniture.
The executor also must establish a value for the assets based on the date of death. When the will is filed and executed with the court, the executor will include a listing and value of all assets. This is done to create an accounting of the value of the estate, which includes the value of any inheritance you would receive. In 38 states, there is no requirement to pay inheritance tax on a deceased person’s assets, but check your state tax laws to determine what applies in your case.
How Do You Receive Money from a Will?
Before any inheritance is distributed by the executor, all of the deceased person’s bills must be paid. These typically include utility, medical, credit card, personal loan, and mortgage expenses. The executor notifies all of the deceased person’s creditors of the death. If there are disputes, they must be resolved by a judge. The executor also must file and pay any outstanding taxes, which can include local, state, and federal income taxes, property taxes, and any applicable inheritance taxes.
If there are extended disputes or problems settling the estate, it is possible you, as a beneficiary, can request certain items before the final distribution. In smaller estates, a beneficiary can submit a claim through a small estate affidavit to receive certain items, such as bank accounts, jewelry, furniture, and stocks.
Once the expenses are paid from the estate, the executor can distribute the inheritance to the beneficiaries. This is the last step taken to execute the wishes of the will and to provide you with your inheritance. Because all expenses and taxes have been paid, you will not be held liable for any unpaid bills or legal disputes.