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January 07, 2015 at 11:00 PM
According to an Ohio University study, you will inherit money or assets in your lifetime. That’s the good news. The bad news is, if you’re like most people, you’ll only hang on to about half of it.
“People need to plan for inheriting wealth to avoid the pitfalls that result in so many heirs making emotional or ill-informed decisions they later regret,” says Michael Abbott, a veteran financial consultant and CFO of The Abbott Bennett Group.
“Particularly with the death of a parent, people can feel a whole range of emotions – guilt, overwhelming loss, anger, relief,” says Chris Bennett, co-founding partner of the firm. “It’s a very bad time to make decisions that can affect you and your family for the rest of your lives.”
Abbott and Bennett share four tips for planning for an inheritance.
• If you inherit non-cash assets, ask questions before you liquefy.
People inherit all sorts of assets: real estate, stocks and bonds, IRAS, gold, jewelry, etc. Different types of assets have different tax burdens attached. In order to preserve as much of your inheritance as possible, you need to learn the best way to minimize the tax burden for each asset.
“Once you’ve liquefied the asset – once you’ve turned it into cash – it’s too late,” Abbott says. “Life insurance is an exception. You won’t be taxed on that. A ROTH IRA that’s more than 5 years old will also be an exception if the amount is exempt under the current federal estate tax rules” ($5.3 million for 2014.)
• If you inherit a tax-deferred retirement plan, consider rolling it into an inherited IRA.
• The best planning starts with a conversation with your loved ones now.