Sources:
1 The 2 moments that matter: Financial professional strategies for the Great Wealth Transfer, Protective Life, 2026.
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How confident do you feel about the money and assets you’ll inherit from a family member? More than 90% of inheritors believe they understand what their inheritance includes.1 But if these expectations don’t align with reality, they may contribute to family tension during the wealth transfer process. If you expect to receive an inheritance, learning about the process now can help you understand what to expect.
Inheritance planning involves determining what, when and how heirs will receive assets. Inheritance planning is part of estate planning, which can include creating the legal documentation intended to help carry out the bequestor’s wishes.
Inheritance planning can include:
Inheritance isn’t only liquid assets such as cash or savings accounts. It can also be a loved one’s investments or even their debt. Knowing what all you may inherit, whether good or bad, is the first step understanding what to expect.
You may inherit assets such as real estate, retirement accounts, businesses or personal property. All these assets can come with their own set of responsibilities and financial obligations.
To help avoid conflict and confusion, ask your parents to create an asset inventory as they plan.
Be aware that an inheritance may include certain debts or debt-related obligations. Many debts may be paid by the estate and won’t pass on to family members. But there are exceptions if you co-signed a loan, share a joint account or live in a state with specific laws about inherited debt.
If you’re listed as a beneficiary on an active life insurance policy, you may be eligible to receive a death benefit, subject to the policy’s terms. You can choose a payout method like a lump sum, installments or a retained asset account.
Make sure you know where insurance policies are stored and confirm you’re a beneficiary.
The steps to take after a parent passes follow a general timeline and process. For example:
Early steps:
Possible next steps:
Later steps:
A key step in this timeline is probate, the process where the court validates the will, settles debts and taxes and distributes assets to heirs. The individual appointed as executor of the estate may be responsible for certain administrative and financial duties during the process. A clear and comprehensive wealth transfer plan can help make sure this process runs as smoothly as possible.
As an heir, don’t wait too long to file claims and take elections, as they can have deadlines.
The weeks and months following a loved one’s death can be financially complex and emotionally charged. It’s important to take time before making financial decisions to evaluate your circumstances and options. It’s easy to make emotional decisions during this time that may not be in your best interests. Here are 3 considerations that may help you evaluate your options.
If not properly managed, certain debts, such as credit card balances and car loans, can accumulate and impact your credit score. Common strategies include prioritizing high-interest debt first (avalanche method) and paying off small debts quickly (snowball method).
Investing may be one option to consider based on your circumstances, goals and risk tolerance. Investments could include brokerage accounts, retirement accounts, high-yield savings accounts or CDs and real estate.
Saving is another beneficial way to use inheritance money. An emergency fund can help you pay for financial surprises, such as major car or home repairs and medical bills or to help with job loss. Establishing an emergency fund is one of the most important ways you can help ensure you’re prepared for the unexpected.
Receiving an inheritance comes with the loss of a loved one, and it most likely will be an emotional time for you. It may be tempting to make impulsive purchases or not consider financial implications. But it’s important to have a plan ready, so you’re less likely to make the following mistakes.
Impulse purchases may affect your ability to meet other financial priorities. This is especially true without a proper plan in place. It’s a good idea to set aside a portion of your inheritance for discretionary spending and save or invest the rest.
Inheriting money or assets can have tax implications that are easy to overlook. Capital gains, federal estate tax and required minimum distributions (RMDs) are all examples of common taxes on inheritance. Depending on which state your loved one legally lived in when they passed away, their assets might also be subject to inheritance and estate taxes.
Bequestors report close family ties, yet nearly half of inheritors worry the inheritance could trigger conflict.1 If you’re concerned about inheritance creating tension within your family, an open family discussion and documented plan may help clarify expectations. If you receive an inheritance, a plan can make sure you’re not overspending or letting money sit in a low-yield account.
Preparation now is one of the best ways you can reduce stress, legal issues and potential family conflict. With a proactive, respectful discussion, you and your family can better ensure everyone is prepared and aligned when the time comes to distribute inheritance.
Family conversations about inheritance might be difficult, but they can provide an opportunity to share information and clarify expectations. Here are questions that may be beneficial to ask your parents:
Documentation is another way to help family members prepare for a possible inheritance. This includes both physical documents, such as a will or property deeds, and digital accounts and passwords.
As the inheritor, it’s important that you have access to these documents when the time comes. A simple and effective way to keep all documentation easily accessible is with an “in case of death” binder. Encourage parents to create a binder and include key documents such as:
Remember, life events such as marriage, divorce or children should trigger the need to review and update documents.
If you receive an inheritance, you’ll gain assets that may affect your own estate plan. You may need to update your own will, trust and beneficiaries. This is one reason why it’s helpful to view inheritance planning as a family financial planning conversation. When the whole family talks openly about the future, these conversations may help everyone understand one another’s expectations and concerns.
Inheritance planning can be complex, often involving a lot of individuals and decision-making. If there are complex family dynamics, unclear tax implications or other situations, you may want to consider an estate planning attorney. The good news is that when you take the time to intentionally plan together and understand the process, you can make the most of your inheritance while honoring your loved one’s wishes.
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