Financial Focus: Are Your Heirs Ready to Receive an Inheritance? |

In the popular imagination, receiving an inheritance always sounds like a good thing. After all, who wouldn’t want a financial windfall? And legacies can certainly be life-changing events. But they can cause problems, so you want to help your heirs be prepared.

To help with this preparation, try to answer some important questions that will affect your heirs:

• Do they know what is in your estate plans? Your family and other heirs will be much better prepared to handle an inheritance if they know what to expect. That’s why it’s so important that you share your estate plans with everyone involved. You must inform them of the wishes and decisions you have set out in your will and other legal arrangements, such as a living trust. Of course, sharing this information doesn’t necessarily mean that all of your heirs will be completely satisfied with your choices, but at least they won’t be surprised and may be less likely to cause disputes when the time comes to settle your estate. .
• Will they know what to do with the money or other assets? You may plan to leave your adult children a significant amount of assets, possibly including cash, stocks, real estate, IRAs, 401Ks, or other types of valuable personal property. But this inheritance raises several possible questions: Do your heirs already have an investment platform ready to accept inherited shares? If you leave behind a rental property or a holiday home, can it be easily sold? These types of problems are generally not difficult to solve, but the better prepared your heirs are for their inheritance, the faster they can take the necessary actions.
• Are they willing to bear any taxes that may arise from the inheritance? Unless you have a very large estate, your heirs likely won’t face federal estate taxes. (In 2024, the first $13.61 million of an estate will be exempt from federal estate taxes.) However, other types of taxes may also apply. A few states impose estate taxes at the state level, and your heirs may have to pay federal and/or state income taxes when they withdraw money from inherited assets funded with pre-tax dollars, such as some retirement accounts. They may also face capital gains taxes if they sell inherited assets, such as stocks, for more than they were worth at the time of inheritance. In any case, inheritance taxes can be complex. Therefore, discuss these issues with your tax advisor, together with your family and other heirs.
• Are they liable for any outstanding costs? If you have a comprehensive estate plan in place, it is unlikely that your heirs will have to cover outstanding costs, such as credit card balances or funeral costs. However, if you still have a mortgage and you plan to leave your home to your heirs, they may want to be willing to act quickly to sell it.

Leaving an inheritance involves a lot: emotionally, financially and legally. So do what you can to make the whole process as easy as possible for your loved ones. Communicating your wishes regarding the estate and considering any issues that may arise can go a long way toward achieving the results you want.

Eric Milhoua is a financial advisor to Edward Jones at Westerly. You can reach him at 401-596-6100.