Insight

Maximizing the Great Wealth Transfer: A Comprehensive Guide to Handling Inherited Assets

The “great wealth transfer” is underway, with an estimated $70 trillion worth of assets expected to pass from the older generation to the younger over the next two decades. However, despite the anticipation of receiving an inheritance, a staggering 58% of adults feel ill-equipped to handle newfound wealth. In this blog, we provide essential financial tips to help you effectively manage inherited assets and turn this significant windfall into a lasting legacy.

The “great wealth transfer” is underway, with an estimated $70 trillion worth of assets expected to pass from the older generation to the younger over the next two decades. However, despite the anticipation of receiving an inheritance, a staggering 58% of adults feel ill-equipped to handle newfound wealth. In this blog, we provide essential financial tips to help you effectively manage inherited assets and turn this significant windfall into a lasting legacy.

Assessing the Situation: Before making any decisions, it’s crucial to delve into the specifics of your inheritance. This involves understanding the types of assets involved, identifying outstanding debts or taxes, and recognizing any legal obligations that may arise.

Understanding the Taxes: The tax implications of your inheritance depend on the type of assets received. We break down the taxation process for three main asset categories:

    • Cash: Subject to your state’s inheritance tax (PA is subject to between 4.5%-12.5% based on your relationship to the descendant). Once the inheritance tax is settled, no additional taxes will be due.
    • Long-term Gain Property: Assets like real estate, stocks, and bonds may be subject to state inheritance tax. Beneficiaries receive a step-up in basis, alleviating responsibility for gains during the descendant’s lifetime.
    • Qualified Accounts: IRA’s, Roth IRA’s, and 401(k)s transition into inherited IRAs. Be aware of the new inherited IRA rules, allowing 10 years for account depletion, with withdrawals taxed at your marginal rate.

 

Having a Thoughtful Plan: Avoid the common pitfall of frivolous spending by implementing a strategic plan for your inheritance. Consider these steps:

        • Use cash wisely: Pay off high-interest debt or fortify your emergency fund.
        • Strategize IRA withdrawals: Plan withdrawals during lower tax bracket years or when you have higher deductions.
        • Decide on inherited assets: Determine whether to hold or sell inherited stocks, bonds, or real estate.
        • Plan charitable contributions: Offset taxes by strategically planning charitable donations in years when you take money out of inherited IRAs.

 

Working with a Professional: Recognizing the complexity of managing an inheritance, seeking professional guidance is crucial. Inheriting money is a top reason people turn to financial advisors for assistance in managing investments, tax planning, estate planning, and retirement planning. At Blue Bell Wealth Management, we’ve assisted numerous clients in navigating inheritances. Feel free to reach out to us for expert help.

At blue bell wealth management, we have helped hundreds of client households navigate an inheritance, feel free to contact us for help.

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