• 05
  • May
    2011

In the last post, we began a discussion on some of the challenges associated with inheriting certain assets. In addition to the obvious benefits of inheritances, there are decisions to be made about what to do with them. Here is some advice about handling those challenges.

Retirement accounts

Inheriting a 401(k), an IRA or other retirement account can be a double win, in that you not only get money, but you can let the money grow free of taxation. But to do that, you have to follow the rules. If you simply withdraw the money all at once, you will almost certainly lose a huge percentage of it to taxes.

Florida estate planning attorneys advise that whatever type of retirement account it is that you inherit, you should transfer it to a "beneficiary IRA." (The exception is if you inherit an IRA, then you can just retitle it.)

In most cases, your best option will be to take minimum distributions from the account, based on a schedule from the IRS. A lawyer could help you with other options, if circumstances warrant. But keeping with the minimum distribution helps you get more money in the long run.

An inheritance with conditions

Particularly with assets inherited through a trust, the trust maker may have set out some conditions about when you'll get the money and how you can spend it.

The conditions could be no distribution before a certain age, or only drawing an amount equal to your earnings, etc. Maybe even without legal conditions, the person who left you the money may have made verbal conditions that you feel obligated to live up to, but that now conflict with your needs or desires.

You may need to learn to live with conditions in a trust. If they are ambiguous, you may be able to have them altered, but otherwise you could waste a lot of time and effort on a fruitless challenge.

If the conditions were informal, try a compromise, or, even better, trust that the person who left you the inheritance would trust your judgment.

Source: CNN Money "Inheritance: How to handle a million-dollar windfall" 5/3/2011