WHEN YOU’RE EXPECTING AN INHERITANCE
The “great wealth transfer” is underway. Over the next few decades, Baby Boomers will pass on $30 trillion in assets to Generation X and Y. If you’ve talked to your older loved ones about estate planning, you may have an idea of the scope of the assets that will wind up in your hands eventually. Have you calculated how this will affect your own estate planning?
Many members of Generation X are in their mid to late forties and fifties and are beginning to make estate planning a priority. You may have already drawn up a will and named your personal representative. But you likely only documented how you’d like your currently owned assets handled. What if there is a future windfall that completely changes your financial picture? How will this affect your estate plan and what should you do?
1. Understand the Rules, Especially About Estate Tax
The major way in which an inheritance is likely to change your estate planning needs is that it will bring you closer to- if not over- the $1 million threshold for Massachusetts estate taxes. If you made your will when you first started your family, you likely had limited equity in your home and had not accumulated a lot of value in your retirement savings. Now, you may have several hundreds of thousands of dollars in equity, a growing stock portfolio in your retirement account, and life insurance as well. Add a substantial inheritance, and you may well have crossed the $1 million mark. It is important that you work with someone to minimize the estate tax burden on your heirs, which could cost your estate $36,000 or more if you do nothing.
2. Assemble Your Team
There are three professionals that you can rely on for assistance: an estate planning attorney, a financial advisor and an accountant.
A financial advisor can help you look at the big picture – how will your inheritance help you accelerate towards your previously determined goals? Next, an estate planning attorney applies their knowledge of tax and inheritance laws, providing specific strategies to save you money and ensure your assets are handled according to your wishes. Finally, an accountant can help you make sure all of your present filings are in order so you’re not surprised with a major tax bill.
At slnlaw, we like to think we’re more than just estate planning attorneys. We help you look at your assets and finances from a 10,000 foot view, but we also provide the up-close expertise needed to preserve your resources. We have your best interests in mind. If you don't already have a financial advisor or an accountant, we are happy to make an introduction to one of our trusted referral partners who can work with us to make sure you have what you need to protect your assets and your family.
3. Ask the Right Questions
Once you’re in front of the right professional, it’s time to make decisions. In order to make sure these decisions are ones you won’t regret, ask yourself the following important questions:
How much of this inheritance do you need right now?
The answer will vary based on your age, income and net worth. You may want to use it to fund a child’s college education or retire earlier. Consider how the inheritance can help your current situation.
What is the actual value of all of your assets?
First, figure out how you’re going to meet the goals you’ve set with your current assets, then calculate how the inheritance can help you get there. One of the reasons why seven out of 10 people will spend their entire windfall is because they use the inheritance as leverage for a lifestyle inflation, such as using the money as a down payment on a property with a mortgage they can’t afford.
Are you on track with your retirement savings?
Before you move assets out of reach for estate planning purposes, make sure you are on track with your retirement savings.
Where are your children in life and what major expenses are still ahead of you?
How you manage a new influx of assets will depend on what is still in front of you. If you are done paying for your children's education and other big ticket items like weddings, and you are relatively secure in your retirement, it may be time to start thinking about putting some assets out of reach to protect them from both taxes and the costs of long term or nursing home care in the future for you or your spouse.
4. Plan Your Own Legacy
The inheritance you receive represents someone else's legacy that they worked hard to accumulate and preserve, then made plans to pass on to you. It is your turn to do the same for the ones you love. The inheritance you receive may include something important to your family that you want to protect for your children- a family business, a family home or vacation property, or some other asset that has been preserved through multiple generations. Now is a good time to consider how to safeguard that asset, which could include putting it in a trust. If there is something in your legacy that matters to your family, you also want to make sure your heirs are not put in a position of selling or liquidating assets just to pay estate tax. Remember that If your inheritance adds significantly to your net worth, it may push you over the estate tax exemption. By setting up a trust to bequeath funds to family or charity, you will protect your estate from tax penalties and ensure your beneficiaries are in the best position possible after your passing.
Finally, when you or your spouse receive an inheritance from your parents, it is frequently a great learning opportunity for you and your children. Talking with your family about your parents' legacy and what it means to you is also an opportunity to educate your children (assuming they are old enough for this conversation) about what you are planning.
In all of the above, consider slnlaw LLC your trusted partner when navigating estate planning after an inheritance. Contact us today to set up a free consultation with our team.
Thanks for helping me understand that the inheritance a person might need would depend on their age, income, and net worth. I guess it would be best to talk to estate planning trusts to create a good plan for my kids. It will help them make good decisions as well if the inheritance that I will pass to them will be segregated and organized properly for each of them.
1/12/2022 08:34:07 pm
I like what you said about keeping track of your retirement savings as they are wrapped in your estate. I need to hire a lawyer to write a will for me. I want all 5 of my kids included in it.
1/24/2022 08:54:14 am
I'm expecting an inheritance, so I want to make sure that I plan it all out properly. It makes sense that I would want to get a professional to represent me for this. That way, I can ensure that everything is handled correctly.
2/25/2022 01:30:47 am
It really helped when you said that we should talk to the right professionals and ask the right questions regarding making your decisions. I will share this information with a friend of mine, especially when she needs help with probate law. It's because her mom was not able to create a will and testament regarding the house that should be hers.
3/21/2022 08:25:30 pm
I never knew that you can hire someone that can help you in planning your assets when you get older. I remember when my father is planning to start his estate planning for his assets, and he asked if I have any idea what is the best option to do. You did a great job of explaining the importance of planning and I'll be sure to consult a trust probate attorney for my future estate planning.
3/24/2022 11:13:39 pm
I like that you said that it is important to have a plan to execute the process properly. I remember when my father is planning to start his estate planning for his assets, and he asked if I have any idea what is the best option to do. You did a great job of explaining the importance of planning and I'll be sure to consult a trust probate administration attorney for my future estate planning.
3/29/2022 08:22:03 am
I loved when you said that how you handle a new influx of assets will rest on what is still in front of you. My grandfather is eighty years old, and realizing he can't be too long to live, he starts talking about the estates that he will be left to us, but don't have a clear thought on how to do it. I will tell him to go into estate planning with a lawyer to make things easy for him.
5/3/2022 03:28:09 am
I liked how this post mentioned that you can rely on an estate planning attorney for assistance. My father needs help with estate planning. I better advise him to look for a reliable estate planning attorney near our place to guide him through the process.
9/1/2022 11:57:59 pm
I wish to leave some property to my daughter as an inheritance. I appreciate you mentioning that if you wrote your will when you first began a family, you probably had little equity in your home and little money saved for retirement. I'll work with an estate planning attorney to prepare the necessary paperwork and inheritance will.
11/15/2022 01:16:17 am
Thank you for revealing. Reading your article about when you're expecting an inheritance was enjoyable. I'm going to bookmarked this article.
2/7/2023 05:51:59 am
I love that you talked that having proper documentation of your estate plans could help prevent estate misunderstandings. I remember when my brother told me the other week that he was planning to start living wills planning for his future retirement plan. He asked if I had any idea what would be the best option for consultation. You did a great job explaining the importance of planning. I'll consult living will services as they can help with the living will documentation process.
2/7/2023 02:37:24 pm
Thanks so much for explaining how inheritance can push you over a threshold and change the necessary taxes you'll need to pay. My partner's grandfather recently passed and their family is now preparing for a probate case. We've been looking into hiring a lawyer to help them understand the process and explain all the changes that will be taking place to their own plans.
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