Receiving inheritance money often happens when a loved one passes away. Handling money is always something that needs to be done carefully and responsibly.
You might wonder, “How do I receive inheritance money without any issues?” This guide will help ensure the process goes smoothly.
Key Takeaways
Someone can receive inheritance money through a variety of ways, including from a will, a living trust, a joint owner or an annuity.
A living trust is the easiest and fastest way to receive inheritance money.
There is no tax payable on inheritance money, as it generally does not need to be reported to the IRS and is not considered taxable income.
Understanding How an Inheritance Works
An inheritance is the assets that a person leaves to a beneficiary, and the assets are referred to as the estate. Inheritance can be several different things, not just money. However, inheritance money is the most common.
Inheritance can include:
Money
Assets that include anything from investments to bonds
Property
Specific items like heirlooms or jewelry
When the loved one chooses someone to leave an inheritance to, they’re known as the beneficiary, and there can be more than one. Regarding how inheritance works, there are two common ways this is done: through a will and intestate laws.
If there is a will, it’s submitted to the probate court, where it is reviewed. After that, the court will typically authorize the executor of the will to transfer the assets to the beneficiaries as stated in the will.
If no will is available, the probate court will evaluate all assets and determine their value. The court will be the executor of the state. It’s preferable to avoid this, as the court will divide the assets as they see fit, not according to how you and the family would like. Depending on what state you’re in, the laws may differ regarding inheritance.
Ways to Receive Inheritance Money Easily
When it comes to receiving an inheritance, there are many different ways, and some are easier than others. Some involve no probate, while others do.
Will
This is the most common way of receiving inheritance money without any hassles. After your loved one has passed away, the executor of the will starts transferring assets to beneficiaries once the probate court has reviewed the will.
While this is an easy way of receiving inheritance money, it may not be the fastest way. Sometimes, the court can take up to two years to complete this process.
Living Trust
Receiving money from a living trust is another easy way to receive inheritance money without any hassles. This is because a trust protects the assets and results in a quick transfer to beneficiaries. When setting up the trust, you can appoint a loved one as a trustee to carry out all your outlined intentions.
Many people choose to create a living trust because you can avoid going to probate court, protect privacy, and benefit from tax exemptions. Probate can take months and even years to sort out, so it’s best to avoid it.
Danielle G. Van Ess, an attorney with over 20 years of trusts and estates experience, explains:
“Trusts can help preserve relationships, incentivize healthy behaviors and lifestyles, encourage good stewardship of inherited wealth and may also help shield beneficiaries from losing the inherited wealth through divorce, lawsuits, unsuccessful business ventures and the like.”
Joint Owner
A joint account with your loved one will ensure an easy transfer of inheritance money to a beneficiary. Typically, banks will have rules about how it works, but after one account holder passes away, the ownership of that money passes on to the remaining partner or partners. This also means if the deceased had any outstanding debts, they will become your responsibility.
The bank account holder will need to set up Payable on Death (POD), where they will need to assign a beneficiary to the joint account. This way, you avoid involving probate court, and the money goes straight to the beneficiary. Different banks have their own requisition, and state laws differ depending on where you live.
Beneficiary Designations
There is also the option of receiving inheritance money by being a beneficiary of a life insurance policy and retirement accounts. When setting up the life insurance policy, the deceased will have chosen the amount they want to be covered. This will be the amount they will receive. The payout will go directly to the beneficiary.
This is an easy way of receiving inheritance money because you are not responsible for any outstanding debts, no probate court is involved, and you don’t pay taxes on the money received.
The process is similar when receiving inheritance money from retirement annuities. The money goes directly to the beneficiary. However, the money received is taxed on the lump sum. Some retirement accounts are subject to certain rules. For example, if the beneficiary chooses to withdraw the money in installments, it must be done within ten years of the deceased’s passing.
Intestate Succession
This way of receiving inheritance money is easy because the beneficiary receives the assets as determined by an external party known as the executor. This also means you may not receive all the money you thought you were getting.
Often, people mistake having a verbal agreement as the same as a written will, but this is incorrect. If there is no will, it’s up to the court to evaluate the value of the assets and determine if there are any outstanding debts before dividing up the assets. This can take a much longer time than you might expect, similar to the probate process.
How to Claim Inheritance Money
Now that you know how to receive inheritance money, how do you claim it? Here are some practicable steps to claiming inheritance money and what documents you need to have ready.
Gather Necessary Paperwork
To begin claiming inheritance money, you must start collecting all relevant and important documents. These include copies of the will, the trust, policy details and identity documents.
Using trusted professionals like Trustworthy to handle this can make this process much faster and more convenient.
Identify and Communicate with Relevant Parties
The key to claiming inheritance money without any hassles is keeping up to date with the proceedings and what you need to do. Communicating regularly with all relevant parties is the best way to do this.
This includes the executor of the will, attorneys and the estate lawyers. You should ensure you know who is handling what and keep in contact with them.
File Insurance Claims
After the deceased has passed away and you are a beneficiary of their insurance policies, you must file any insurance claims to receive the money. Before you do this, be sure you have all the relevant documents handy.
If you’re unsure about the process, contacting the insurance broker overseeing the policy is a good idea.
Review Any Debts & Liabilities
Before you can claim any inheritance money, you will need to check that the estate does not have outstanding taxes and bills. If outstanding amounts need to be paid off, the executor of the state will settle that before the money is transferred to you.
Tips to Claim Inheritance Money Fast
Claiming inheritance money can sometimes be a long process, especially if the probate court is involved. However, following these useful tips should help you claim it faster.
Regularly Communicate
Communicate often with all persons involved in the process. This means talking to the executor, the court, your family and the attorney.
Be clear in your questions and concerns, as a lack of communication can cause confusion over what needs to be done or what is happening. Confusion can lead to delays, which you don't want.
Maintain Organized Records
Keep all your documents, certificates, and records organized to stay on top of things. This will prevent any delays in payment or problems due to missing documents. We suggest making copies of your documents or using Trustworthy to take care of them for you.
Be Aware of Potential Scams
Be on the lookout for potential scams. You should disregard suspicious emails or messages asking for personal information regarding inheritance emails.
All the information will be with the executor of the will. If a business or individual offers a service that can drastically speed up the probate process for a large fee, this is most likely one of the many probate scams.
Be Patient & Persistent
One of the most important things to do when going through the process of claiming inheritance money is not to give up. The process may seem overwhelming at first, especially on top of grieving, and you may be tempted to give up. Don’t. Be persistent and remember you are allowed to ask for help.
Sometimes, the process can take a while, and when you know you’ve got a sum of money headed your way, waiting can feel impossible. But it is important to stay patient from start to finish.
Seek Professional Advice
You don't have to do this alone. Seek professional advice from qualified estate professionals to avoid confusion or mistakes that can lead to long delays and additional expenses.
Frequently Asked Questions (FAQs)
How do beneficiaries receive their money from a will?
The inheritance will be transferred directly to the beneficiary via their account after all relevant taxes and fees have been paid.
Can inheritance money be directly deposited?
Yes, this can be done using a check or a direct wire to your bank account.
Do I need to report inheritance money to the IRS?
You don’t need to report inheritance money to the IRS because it’s not considered taxable income. However, if your inheritance generates income, that money will be taxed.
How much money can you inherit without having to pay taxes on it?
This will vary depending on the state, as there are six states that currently impose inheritance taxes. This means that anything over $12.92 million will be subject to tax.
What happens when you inherit money?
Once you’ve inherited the money, it’s up to you what to do with it. You can invest it, pay off debts, or even set up an emergency fund.
