As difficult as it is to lose a loved one, it would be nice if the financial situation sorted itself out after a death.
Unfortunately, receiving the assets of a deceased spouse or family member can be a complex process. Most people have their money stored in a variety of different financial vehicles -- checking and savings bank accounts, CD and money market accounts, investment accounts, employer retirement plans and pensions, life insurance policies, annuities and even real property.
So, how do you claim assets that are passed on to you? And should you just leave it where it is or transfer it to an account or policy in your name?
In the case of bank accounts, it helps if the decedent had a “payable-on-death” (POD) beneficiary form on file with the bank. If not, those assets will have to go through probate before they can be released. If the bank accounts were held in a living trust, the funds will be transferred to the beneficiary named in the trust and will avoid probate.1
If you inherit an IRA account, options vary based on whether you’re the account owner’s spouse. If you are the spouse, you can assume the IRA as your own, inherit the IRA, or disclaim the IRA. If you are not the spouse, you may either disclaim the IRA or inherit the IRA in which you would be required to take a required minimum distribution (RMD).
If you inherit a non-retirement investment account, you can either transfer the proceeds from the inherited account into a new account in your name, or you can disclaim it and it will then pass to the other primary beneficiaries or, if none exist, to any secondary beneficiaries. If you disclaim an account, you can’t change your mind later.
If you inherit a house, you don’t have to pay income taxes on its value. However, if you decide to rent the house, you will have to report the rent payments you receive as part of your taxable income each year. Therefore, you must pay income tax on the payments you receive.
To claim life insurance proceeds and annuity benefits, each beneficiary needs to complete the insurance company’s claim form and submit it with a certified copy of the death certificate. Interestingly, many life insurance proceeds are never paid out because the owner didn’t tell his or her beneficiaries about the policy before dying. If you suspect this may have happened, visit MissingMoney.com (a database of governmental unclaimed property records) to conduct a search.
Everyone’s financial situation is unique, so you could face any number of scenarios when claiming assets following the death of a spouse or loved one. If you want to prepare in advance to help simplify the process for your beneficiaries down the road, feel free to give us a call to review your current financial vehicles to ensure a beneficiary is listed.
Interested in reading more? Here are some articles that may be of interest to you:
[CLICK HERE to read the article, “What Happens to Bank Accounts at Your Dealth?” From Nolo.com. 2016]
[CLICK HERE to read the article, “I’m Inheriting an IRA,” from Vanguard. 2016.]
[CLICK HERE to read the article, “I’m Inheriting an Account That’s Not an IRA,” from Vanguard. 2016.]
[CLICK HERE to read the article, “Must You Pay Income Tax on Inherited Money? From AllLaw.com. 2016]
[CLICK HERE to read the article, “How Beneficiaries Can Claim Life Insurance and Social Security Benefits,” from Nolo.com. 2016]
[CLICK HERE to read the article, “RI Treasurer’s Office: Thousands Owed Life Insurance Benefits,” from WPRI-12. May 16, 2016.]
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.