Wealth Management

12 Questions to Ask When Receiving an Inheritance

5 mins
Jon Green
February 29, 2024

No one wants to think about it: The death of a relative is a time for mourning and remembering the good they brought to your life. But there are still technical matters to consider—namely, a potential inheritance.

Navigating the inheritance process can be time-consuming and confusing at a time when you and your family are already focused on grieving your lost loved one. 

Ideally, your relative will have left clear instructions on finding their will and distributing the inheritance. But that’s not always the case, making wealth transfer complicated.

When getting started with an inheritance, it’s important to ask the right questions. We’ve curated 12 essential questions to ask when expecting a financial windfall.

1. Is there a will or trust?

The first thing to do is to determine if there is a will or a trust and where the item is located. While both detail the deceased person’s wishes for asset distribution, they do differ.

A will is the most common document for determining an inheritance. A person may appoint an executor of the will, guardians for children or animals, funeral directives, and answer similar questions regarding a deceased person’s wishes.

Trusts, however, offer more flexibility. They outline the transfer of assets to a trustee, which can be a relative, friend, charity, or even a pet. These items set distinct terms for asset management, including requirements for receiving an inheritance. 

There are key differences in how they function:

Wills are often used to detail funeral arrangements, while trusts are used in estate planning to facilitate inheritance transfers.

2. Who is the executor?

Every will or trust should name an executor—the individual responsible for managing the deceased’s estate. They should be named clearly in the will documentation. 

In some cases, the deceased names multiple executors. This approach is typically used to either reduce the workload for an individual executor or to better ensure that the assets are managed properly. Two or more executors check and balance each other.

Guardianship of children or animals may prompt multiple executors. One may be responsible for allotting financial distributions to this individual, while another must ensure they are taken care of. 

An alternate executor may also be listed. This person is meant to take over if the initial executor dies. 

The executor does not necessarily have to be the deceased's family member or friend. They may have hired a professional executor, who will be paid out of the estate funds. 

3. What assets are included in the inheritance?

An inheritance is rarely just money. Understanding the scope of the inheritance can help you understand the approximate timeline. Outside of the deceased person's bank and brokerage accounts, you may find:

Certain assets may be listed in the will, while others will be in the trust. Assets with a named beneficiary, such as life insurance or retirement accounts, are often not included in the will. 

Furthermore, joint property would not be included. 

4. Are there outstanding debts or liabilities?

The deceased may have outstanding debts and obligations. These would need to be settled prior to distributing assets. Common liabilities that become the responsibility of the estate would be medical or credit card debt. 

That said, living loved ones are not responsible for paying back these debts unless they are a co-signer or joint account holder.

5. Has the probate process started?

In some cases, the probate process may have already started. The probate process is set on a state-by-state basis. For that reason, it can be difficult to determine how long it may take, although it often takes a minimum of four months. Even without disputes, it can take as long as 18 months to complete the process. 

There are also several fees to consider when going through probate court, such as attorney fees and other court costs. 

6. Are there any tax implications?

Beneficiaries may be exposed to inheritance or estate taxes. Neither are federal taxes and so which taxes may be relevant will differ from state to state.

Inheritance taxes are levied on the beneficiary when they receive their inheritance. The following states have inheritance taxes:

Estate taxes, in contrast, are taken out of the deceased person’s estate upon death. Furthermore, not every state carries an estate tax rate. States levying estate taxes include:

7. How will the inheritance be distributed?

Every inheritance process is unique when it comes to timelines. Disputes, estate complexity, estate taxes, probate court, and other items affect the distribution process. 

However, the distribution process can be summarized as follows:

8. What financial accounts need to be transferred?

Most financial accounts may name a beneficiary, but you will still need to contact the bank or brokerage regarding the deceased person’s death. Potential financial accounts to transfer are:

9. Are there specific conditions or restrictions on the inheritance?

The deceased may have placed certain conditions for receiving an inheritance. For example, if your father left you $100,000 at age 20, you may receive $50,000 at the time of death and $50,000 at age 35. The funds may be available at the trustee’s discretion, which is common when supporting a minor, a specially-abled individual, or a pet. They may even withhold distribution if the surviving individual engages in certain behavior, such as drugs or criminal activity, or completes milestones, such as getting married. 

10. What is the value of inheritance?

The value of bank and retirement accounts is fairly straightforward. But what about real estate? Or collectibles and sentimental items.

Every item in an inheritance must have a value. Knowing the value makes it easier to distribute the estate equitably and determine taxes or additional expenses.

11. Should I consult with professionals?

There are a few different categories of service professionals you may hire when receiving an inheritance:

12. What steps should I take for financial planning?

Determining what to do with your new windfall is not always easy. It can be intimidating to know what to do with a sudden influx of cash. Even if you have several needs, such as a new car or a college education, it can be challenging to make spending decisions, especially when processing the death of a loved one.

There are several other decisions you may need to make, depending on what you inherit.

For example, if you receive a brokerage account with stocks from the deceased, you must decide whether to buy, sell, or hold that asset. This will entirely depend on your investment strategy. In some stances, you may gain a controlling interest in a company via shares, which adds an additional responsibility.  

Real estate is another complex inheritance. You may share the property with other beneficiaries or incur greater tax liabilities. 

The fact is that an inheritance significantly impacts your financial goals, for better or for worse. You will want to take the following steps after receiving your inheritance:

You may work with a financial advisor (we've written on how to find one) or tax consultant to assess, review, and align your assets with your financial plan. 

Want a second opinion?

Want some feedback
on your retirement plan? We can help.

With over 40+ years of experience in the financial sector, and as a licensed fiduciary, founder Jon Green can help you look over your retirement plan and understand whether you are on track.

You can book a complimentary session
or call me at +1 (828) 884-8840.

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