The average retiree plans to leave an inheritance of about $177,000 according to the Survey of Consumer Finances. Everyone wants to leave their family something after they are gone. Are you looking to make sure your kids or grandchildren receive an inheritance after death?
Wondering how does inheritance work? Keep reading! We will go over how to create an inheritance for your family.
How Are Assets Distributed?
After someone passes away, the will is submitted to a probate court. The court then reviews the will and then authorizes an executor if one is not named. The executor is typically a family member or friend that pays the taxes and debts due out of the estate assets.
After those obligations are settled. the executor then transfers the remaining assets following the terms of the will. If you have specific instructions for your assets, it is imperative you have a will.
The will must be valid, and if there are no disputes, the executor finishes the requests of asset distribution outlined in this will.
Wondering how to create a will? There are steps to follow to make sure you get the right will. It’s best to work with an attorney to ensure you cover all areas of the will. You should also work with retirement planning services to make sure you leave what you want to your family.
How Does Inheritance Work When There Isn’t a Will?
However, if there is no will or the survivors want to dispute the will, there are some laws to decide who gets what. These laws vary greatly between different jurisdictions, so it’s best to work with an attorney.
A general rule is that the closest to the deceased inherit first. This includes spouses and children. Then followed by parents, grandchildren, grandparents, and then more distant family members. If you want to give money to a friend or lover, you need a will because typically it is hard to inherit if there is no will for people that are not related to the deceased.
Without a will, the probate court will do its best to determine the wishes of the deceased. This includes looking for named beneficiaries on bank accounts, stocks, retirement accounts, and brokerage accounts. The hardest assets to distribute without a will include heirlooms, real estate, jewelry, and other property.
Who Pays Liabilities?
Luckily, personal obligations are not passed to beneficiaries. This includes student loans, credit card debt, and other forms of personal expenses. After someone passes away, these debts are typically wiped out.
However, if there are expenses tied to assets like mortgage payments or car loans, whoever inherits these properties will usually be required to continue these payments or the creditor can take the asset.
What About Taxes?
There is no federal inheritance tax, but there are six states that do impose inheritance tax including Maryland, Iowa, Kentucky, New Jersey, Pennsylvania, and Nebraska. In these states, the spouse is exempt from paying inheritance tax, but children and grandchildren are not exempt in Nebraska and Pennsylvania.
When there is an inheritance tax, this rate depends on your relationship to the deceased and also how much you inherited. These rates range from 0 to 18 percent of the inheritance.
Start Planning Today
How does inheritance work? If you don’t have a will, it can be complicated. If you have a certain way you want to distribute assets, it’s best to plan accordingly to ensure your wishes are carried out.
Looking for more financial advice to help you plan for retirement or manage your money? Check out some other great articles in our Finance section today.