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The Protections of Inheritance Planning

May 25, 2016

inheritance planningIt may come as a surprise but for some people finding out that you are about to receive an inheritance is not always good news.   For people who are currently receiving some form of income or asset based government benefits, such as SSI or Medicaid benefits, there is always a concern that an inheritance may jeopardize their eligibility for those benefits.  For others, the thought of receiving certain types of assets, such as a family-owned business, may seem overwhelming.  If you are about to receive an inheritance you should contact your estate planning attorney to determine if inheritance planning is something you may need.

The first step is to find out what you will receive

Before you can successfully plan, you need to know, at least in general terms, what type of inheritance you will be receiving.  For example, if you are inheriting from a parent, then you should obtain a list of assets and a copy of your parent's will if there is one. That way you can get at least a rough estimate of the size of the estate and what your share will be.  Depending on the size of the inheritance, you will need to consider how to modify your own estate and financial planning strategies.

Integrating your inherited assets into your own

Exactly how you should integrate inherited assets into your own finances depends on several factors, including the nature of the assets you inherit, the financial and estate planning strategies your parent may have used, your marital status and potential desire to keep your inherited assets separate from your marital estate, and your own financial situation.  Again, if you receive government benefits of any kind, your eligibility for which are dependent on your financial resources, you will need specific inheritance planning to protect that inheritance as well as your benefits, and time is usually of the essence.

What type of inheritance did you receive?

Typically, inheritances include mostly cash, along with some heirlooms and other tangible property that often has more sentimental value than real financial worth. In most cases it is easier for the Personal Representative of an estate to distribute assets to heirs after they have been liquidated.  However, there can be situations where you may receive shares of stocks, mutual funds, individual bonds, real estate or an interest in closely held business. Depending on the size of these types of assets, you may prefer to sell them and reinvest the proceeds using a different strategy.  Your estate planning attorney can help you make these decisions.

Determining how to handle certain assets

Depending on the nature of the assets you expect to inherit, there are certain actions you may need to take sooner, rather than later.  For instance, if you wait too long to sell an asset you inherited, you could increase the chances of recognizing unfavorable tax consequences.  If you are inheriting a retirement account, you need to have a plan as to how you will withdraw those retirement funds, and the retirement account must be retitled as an inherited retirement account by September 30 of the year following the account owner's death.  Being aware of all of your options is important when creating an inheritance plan, especially if your goal is to reduce your tax liabilities as much as possible.

Deciding whether to disclaim or reject an inheritance

Once again, if you receive income-based government benefits, receiving a significant amount of income from an inheritance could put your eligibility for those benefits in jeopardy.  If inheritance planning will not provide the protections you need or the risk is not worth the value of the inheritance, you may want to consider rejecting it if state law permits such an approach.  Many people do not realize that you can reject an inheritance and there are situations where that may be the best course of action.
It is important to note that rejecting or disclaiming an inheritance requires more than simply telling the Personal Representative you do not want the money or property.  There are specific laws that dictate how you can reject an inheritance.  If order to be sure that you never become the legal owner of the property, there are very specific steps that need to be followed.

How to reject an inheritance

In nearly every case, you need to put your disclaimer in writing and deliver it to the person in control of the estate if you want to properly reject your inheritance.  Typically, that would be the Personal Representative of the estate or the Trustee of the trust that holds the subject property.  This disclaimer should normally be submitted within nine months of the person’s death. It is very important to note that, in order to effectively reject the inheritance, you may not accept any benefit from the property whatsoever.
Attend a free Webinar! If you have questions regarding inheritance planning or any other estate planning issues, please contact Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.

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