Inheriting money or property from loved ones can be both a blessing and a challenge. For those who aren't accustomed to managing large amounts of assets, the responsibilities that come with this newfound wealth can be overwhelming. Whether you've inherited cash, real estate, stocks, or a retirement account, each asset class brings its own set of complexities, from tax implications to management responsibilities.

In this guide, we'll walk you through the steps to take when you've inherited assets, how to manage each type effectively, and why seeking professional guidance from a fiduciary like William Bevins, a Certified Financial Planner (CFP), can make all the difference. By the end of this article, you'll have a clearer understanding of how to protect and grow your inheritance while avoiding common pitfalls.

Understanding the Scope of Your Inheritance

The first step in managing an inheritance is understanding what you've received. In 2023, the United States saw approximately $427 billion in inherited wealth, a number that highlights the significant impact inheritance can have on an individual’s financial future. Whether your inheritance is modest or substantial, it's crucial to have a clear picture of your new financial landscape. Types of inheritance:

  • Cash and Bank Accounts: These are typically the simplest assets to manage. However, even with cash, there are decisions to be made regarding whether to save, invest, or pay off debts.

  • Real Estate: Inheriting property comes with the responsibilities of upkeep, potential rental management, and deciding whether to sell or keep the property. Real Estate can also have significant tax implications, especially if the property has appreciated in value.

  • Investment Portfolios: Stocks, bonds, and other investments may require rebalancing or divesting, depending on your financial goals. It’s important to assess the risk and make decisions based on your long-term financial plan.

  • Retirement Accounts (IRA, 401(k)): Inherited retirement accounts come with specific IRS rules, particularly with required minimum distributions (RMDs). The SECURE Act of 2019 changed the rules for inherited IRAs, requiring beneficiaries to withdraw all funds within 10 years. Understanding these rules is critical to avoid costly tax penalties.

  • Businesses: If you’ve inherited a business, you’ll need to decide whether to keep, sell, or manage it. This decision will depend on your skills, interest, and the business’s financial health.

The Responsibilities of Managing Inherited Wealth

1. Tax Implications

One of the most important aspects of managing an inheritance is understanding the tax obligations. Taxes can significantly impact the value of your inheritance if not handled properly. Always consult your tax professional for help.

  • Estate Taxes: Depending on the size of the estate and the state in which the deceased lived, estate taxes may be owed. As of 2023, the federal estate tax exemption is $12.92 million, meaning estates valued below this amount are not subject to federal estate tax. However, some states have their own estate or inheritance taxes, which may apply.

  • Capital Gains Tax: If you inherit assets that have appreciated in value, such as stocks or real estate, you may be subject to capital gains tax when you sell them. The good news is that inherited assets typically receive a “step-up” in basis, meaning the capital gains tax is calculated based on the asset’s value at the time of inheritance, not when it was originally purchased.

  • Income Tax: Inherited retirement accounts, such as IRAs or 401(k)s, are subject to income tax when distributions are taken. Understanding the rules around these distributions is key to minimizing your tax burden.

2. Time Commitment

Managing an inheritance isn’t just about money; it’s about time. Depending on the assets involved, you may find yourself spending a significant amount of time managing your inheritance.

  • Real Estate: Property management can be time-consuming, especially if you decide to rent out the property. This involves maintenance, dealing with tenants, and possibly hiring a property management company.

  • Investment Portfolios: If you’ve inherited a diverse investment portfolio, it may require ongoing attention to ensure it aligns with your financial goals. This might involve rebalancing your portfolio, researching new investment opportunities, or consulting with a financial advisor.

  • Businesses: Inheriting a business can be particularly demanding. You may need to step into a leadership role, make strategic decisions, or even manage employees. If running a business isn’t your forte, you might consider hiring a professional manager or selling the business.

Common Pitfalls to Avoid

1. Making Hasty Decisions
One of the biggest mistakes people make after inheriting wealth is making quick decisions without fully understanding the implications. It’s easy to feel pressure to act immediately, but taking the time to assess your options is important.

2. Spending the Money Quickly: It can be tempting to splurge on a big purchase or lifestyle upgrade after receiving an inheritance. However, it’s important to consider the long-term impact of your decisions.

  • Selling Assets Too Soon: Selling inherited assets without understanding their value or tax implications can lead to financial losses. For example, selling real estate or stocks during a market downturn could result in selling at a lower value than what you might achieve with patience.

3. Ignoring Tax Obligations
Failing to understand and meet tax obligations can lead to penalties and reduce the overall value of your inheritance.

  • Missing Required Minimum Distributions (RMDs): If you’ve inherited a retirement account, you may be required to take RMDs. Missing these distributions can result in hefty tax penalties, so it’s important to stay informed about the rules.

  • Overlooking State Taxes: Even if your inheritance isn’t subject to federal estate tax, state taxes may still apply. Each state has different laws regarding inheritance and estate taxes, so it’s essential to understand your state’s requirements.

4. Overcommitting to Property Management
Inheriting real estate can be a valuable asset, but it can also become a burden if you’re not prepared for the responsibilities that come with it.

  • Underestimating Maintenance Costs: Property maintenance can be costly and time-consuming. If you’re not ready to take on the responsibilities of property management, you might consider selling the property or hiring a property management company.

  • Difficulty in Selling Property: Real estate markets can be unpredictable. If you need to sell inherited property, it may take longer than expected, especially if the market is slow or the property needs significant repairs.

Why You Should Seek Professional Guidance

Managing an inheritance can be complex, especially if you’re not used to dealing with large amounts of money or diverse assets. This is where the expertise of a financial professional like William Bevins, a fiduciary and Certified Financial Planner (CFP), can be invaluable.

1. The Role of a Fiduciary
A fiduciary is legally and ethically required to act in your best interest. This means that when you work with William Bevins, you can trust that his advice is tailored to your unique situation and goals. He can help you create a comprehensive financial plan that considers all aspects of your inheritance, from financial planning to investment management.

2. The Value of a Certified Financial Planner (CFP)
A CFP is trained in many areas of finance, including investment management, estate planning, retirement planning, and investment tax strategies. This broad expertise makes a CFP especially valuable when managing an inheritance, which often involves multiple financial disciplines.

  • Investment Strategy: A CFP can help you develop an investment strategy that aligns with your risk tolerance and financial goals. Whether you’re looking to grow your wealth, preserve it, or generate income, a CFP can guide you in making informed decisions.

  • Tax Planning: With an understanding of tax rules, a CFP, with the help of your CPA, can help you minimize your tax burden and ensure that you’re in compliance with potential tax obligations.

  • Estate Planning: If you’re interested in passing on your wealth to future generations, a CFP, with the assistance of your personal attorney, can assist with estate planning strategies that protect your assets and minimize estate taxes.

Navigating Inherited IRA Accounts

Inherited IRA accounts come with specific rules that can be tricky to navigate, especially following the passage of the SECURE Act in 2019. These rules include:

  • 10-Year Withdrawal Rule: Non-spousal beneficiaries are required to withdraw all funds from an inherited IRA within 10 years of the original owner’s death. This rule applies to both traditional and Roth IRAs.

  • Tax Implications: For traditional IRAs, withdrawals are subject to income tax. If the account is substantial, these withdrawals could push you into a higher tax bracket, resulting in a larger tax bill. Roth IRAs, on the other hand, are typically withdrawn tax-free, provided the account has been open for at least five years.

  • Required Minimum Distributions (RMDs): If the original account holder had already begun taking RMDs, the beneficiary may be required to continue taking them within the 10-year period. Missing an RMD can result in a penalty of 50% of the amount that should have been withdrawn.

Given the complexity of these rules, it’s highly advisable to consult with a financial planner who can help you develop a strategy for managing your inherited IRA while minimizing your tax burden.

Take Control of Your Inheritance

Inheriting money or property is a significant event that can impact your financial future for years to come. By understanding the responsibilities that come with each type of asset, avoiding common pitfalls, and seeking professional guidance from a fiduciary like William Bevins, you can make informed decisions that protect and grow your wealth.

A Certified Financial Planner (CFP) brings a wealth of knowledge and experience to the table, offering advice on everything from investment strategies to investment tax planning. Whether you’ve inherited a modest sum or a substantial estate, working with a CFP can help you navigate the complexities of inheritance and secure your financial future.

Remember, managing an inheritance isn’t just about maintaining wealth—it’s about making it work for you in the long term. With careful planning, a clear understanding of your assets, and the right professional support, you can ensure that your inheritance serves not only as a tribute to your loved ones but also as a foundation for your financial security and legacy.

Take Action Today

If you've recently inherited assets and are unsure of your next steps, don’t wait until potential pitfalls catch up with you. Reach out to William Bevins, an experienced fiduciary, who can guide you through the intricacies of managing your inheritance. With his help, you can develop a comprehensive financial plan that aligns with your goals and ensures that your wealth is preserved and grown for future generations.

A Certified Financial Planner (CFP) like William Bevins is trained across multiple areas of finance, making him uniquely qualified to help you navigate complex retirement plan rules, investment strategies, and more. Whether it's understanding the IRS rules around inherited IRA accounts or making smart decisions about real estate and investments, a CFP provides the expertise needed to optimize your inheritance.

Final Thoughts

Inheritance can be both a gift and a responsibility. By taking a measured approach, educating yourself on the various aspects of your inherited assets, and seeking the advice of financial professionals like William Bevins, you can turn this windfall into a lasting legacy. Start planning today to make the most of what you’ve inherited, and ensure your financial future is as secure as possible.