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).2
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.3
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.4
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.5 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.6
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.
1 Mary Randolph. Nolo.com. 2016. “What Happens
to Bank Accounts at Your Death?” http://www.nolo.com/legal-encyclopedia/what-happens-bank-accounts-your-death.html.
Accessed June 10, 2016.
2 Vanguard. 2016. “I’m inheriting an IRA.” https://investor.vanguard.com/inherit/ira.
Accessed June 10, 2016.
3 Vanguard. 2016. “I’m inheriting an account
that’s not an IRA.” https://investor.vanguard.com/inherit/nonretirement.
Accessed June 10, 2016.
4 Mary Randolph. AllLaw.com. 2016. “Must You
Pay Income Tax on Inherited Money?” http://www.alllaw.com/articles/nolo/wills-trusts/must-pay-income-tax-inherited-money.html.
Accessed June 10, 2016.
5 Mary Randolph. Nolo.com. 2016. “How
Beneficiaries Can Claim Life Insurance and Social Security Benefits.” http://www.nolo.com/legal-encyclopedia/beneficiaries-claim-life-insurance-32433.html.
Accessed June 10, 2016.
6 Annie Shalvey. WPRI-12. May 16, 2016. “RI
treasurer’s office: Thousands owed life insurance benefits.” http://wpri.com/2016/05/16/ri-treasurers-office-thousands-owed-life-insurance-benefits/.
Accessed June 10, 2016.
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statement contained herein shall constitute, tax or legal advice. Individuals
are encouraged to consult with a qualified professional before making any
decisions about their personal situation.
We are an independent firm
helping individuals create retirement strategies using a variety of insurance
and investment products to custom suit their needs and objectives. This
material is intended to provide general information to help you understand
basic financial planning strategies and should not be construed as financial
advice. All investments are subject to risk including the complete loss of
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Content prepared by Kara Stefan
Communications
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