The kids are gone, time for new financial planning
Once you become a nestor in the sky, you’ll want to revalue your money.
USA TODAY
Although inheritance is often considered a financial windfall, people may want to consider saying thank you, but not thank you.
Receiving a substantial gift, even if not properly structured, can have unintended consequences that can overturn your financial situation or cause friction between your family. If any of them are true, they will consider rejecting it, experts said. It may not be worth your time, money, or feelings.
“The types of assets you inherit — what can it do for you, whether it fits in your universe, and are you the best manager of those assets,” said Mikros Ringbauer, a Certified Public Accountant in Southern California.
Why do people need to think about inheritance now?
The so-called large-scale transfer of wealth has begun. Approximately $124 trillion in assets will change hands until 2048, according to estimates from consulting firm Cerulli Associates. Recipients are expected to inherit that amount of about $106 trillion, mainly from the baby boomer generation, with the rest going to charity.
Passed assets include cash and other current assets, stocks and bonds, real estate, business profits, retirement accounts, other investments, and personal property.
When do you want to say no?
It’s not typical to say no to inherited assets. Experts recommend consulting with a financial planner and accountant to help you determine whether it is right for you.
However, if you would like to consider rejecting inheritance, it includes:
- Inheriting assets can increase the size of the property and create complexity in your heir’s tax planning when it’s time to hand over them.
- If you accept certain assets, such as IRAs or 401(k) money, you will have to pay taxes on the distribution, which leaves you with a big tax bill, Ringbauer said. Distributions from accounts such as 401(k) and IRAs are considered income rather than capital gains and could push them into a higher tax bracket. Also, you will not receive a step-up base. This means that the cost base remains the same as the original owner.
- Inheriting assets creates rifts in the family. “If your mom has four kids and you have a little more left with your daughter, then when she takes it, people will say she stole it or her mother doesn’t love me,” said Patrick Simasko, elder law lawyer and financial advisor at Simasko Law. “If she loses her relationship with her siblings, she shouldn’t take it for emotional drama.”
- Accepting real estate that is unmanageable or unsellable. “Look at it before you accept it,” Simasko said. “You may not want that.” Examples include isolated areas and large free lots of timeshares. It’s not easy to sell either, but it costs you an annual fee for the rest of your life, he said.
Beware, tricky government interests
Claiming inheritance allows you to exceed your income and assets limits to qualify for government programs such as Medicaid and Supplementary Security Income (SSI). However, refusing inheritance is considered a gift, so it is not as easy as abandoning inheritance in order to reject inheritance.
Denying inheritance property can hurt you, so some experts suggest that you take the inheritance and use it immediately to readjust it up for benefits.
Medicaid recipients can use inheritance to pay off their debts, pay long-term care payments, household modifications for safety and accessibility, or purchase assets that are exempt from Medicaid asset restrictions, such as upgrades to furniture and appliances, such as furniture and appliance upgrades, according to the American Council.
The best way to avoid this is to “prevent parents from leaving money behind for others,” Simasco said. “If you use a special trust instead, the person can withdraw from it.”
For example, assets to beneficiaries of an irrevocable trust do not affect the assets of the beneficiaries and do not oppose eligibility for government benefits, Ringbauer said. However, beneficiaries can tap on those assets.
How to refuse inheritance
The legal process is to “deny” inheritance. In other words, they refuse to accept rights to assets that they are supposed to inherit. Here’s how it works in general:
- Nine months to deny. All documents can take up to six months to obtain, so letters may be abandoned, signed, notarized, sighted and delivered.
- Abandonment is irreversible. Once denied, you cannot change your mind.
- You must not benefit from or take ownership of assets before abandonment.
- Check the rules of the state. Every state has its own rules regarding succession, so you need to check them to make sure you are obedient.
What happens to the inheritance that has been denied?
The denied succession line up with the next person or beneficiary. You cannot choose the person to receive the assets.
If there is no other person named as the next beneficiary, the assets go through a probate process and are left to those associated with the deceased.
Medora Lee is a money, market and personal finance reporter for USA Today. mjlee@usatoday.com and Subscribe to our free daily money newsletter Personal finance tips and business news every Monday to Friday.
