Person filling out taxes

Understanding Inheritance Issues

Inheriting money or property can be complex. Be prepared by understanding the basics and learning where you can get help.

Understanding basic terms

If you are inheriting assets, you'll likely hear these terms.

  • Inheritors, heirs and beneficiaries — These terms apply to anyone who inherits according to a will or to the law.
  • Debts — After a person dies, debts are paid before any inheritance is passed on to heirs. You're usually not legally responsible for the debts of a parent or relative. Their estate is responsible for paying the remaining debts.
  • Estate — The estate refers to assets left behind after a person's death.
  • Estate taxes or taxes on your inheritance — Federal and state taxes may be due after a death. In some states, the taxes are paid by the estate's assets and in others, the inheritors pay it.
  • Executor — The person named in the will or appointed by the court who gathers, secures and manages the estate's assets is known as the executor.
  • Probate — A court oversees the distribution of property after the owner's death. This legal process is known as probate.
  • Will — A will is a legal document that states how a person's property is to be distributed after death. If there is no will, every state has "intestacy laws" that provide a formula for determining inheritance.
  • Trust — This legal document describes how a person's property is to be distributed to named beneficiaries.

Tips for making decisions about your inheritance

Inheritances can involve complex financial and emotional issues. Here are some tips to help make the process as easy as possible:

  • Take it slow — Don't make hasty decisions or impulsive purchases. An inheritance may represent the largest sum of money you'll ever receive at one time.
  • Put cash in a safe place — While you're considering your options, put inherited cash into a low-risk money market fund or CD.
  • Get expert advice —Consult a probate lawyer within two weeks of the death. A lawyer can give you a good idea of the timetable and any issues you might face. This doesn't need to be expensive. Sometimes one hour can lead to an action plan that saves you time and money. You also may want to talk with an accountant and a financial adviser.
  • Incorporate your inheritance into your own estate planning — If you already have a will, you may want to look at it again.
  • Decide what to keep and what to sell — Decide how to allocate inherited cash among your existing investments and savings, what you will do with any inherited property and what to do with inherited stocks.
  • Account for potential taxes when planning — Be sure you factor in any applicable inheritance tax.
  • Keep careful records —Even after the process is over, you may want to keep copies of important documents, such as the will and trust documents, asset inventory and value, and multiple copies of the death certificate. Good record keeping today can save you from a headache in the future.

Disagreements with other inheritors

To avoid familial conflict, talk openly with your fellow inheritors about these issues:

  • Taking turns —For objects with sentimental value, you can take turns choosing items.
  • Fair value —If the intent is to ensure that everyone receives objects of equal monetary value, you can wait until all items have been appraised and allot each person a certain amount to "spend" on the items.

There are plenty of resources to guide you and your family through the estate process. Reach out to your installation legal assistance office, your Military and Family Support Center or Military OneSource for free financial counseling.