Invest in good growth stock mutual funds through an individual or joint taxable brokerage account. Spread your money across four different mutual fund types: growth, growth and income, aggressive growth, and international. An investing professional can walk you through all your options. If you need help finding an advisor, check out SmartVestor. Depending on the size of your inheritance, you may be able to purchase a rental property outright. Never borrow money for a rental property.
If you have the cash to spare, contact a real estate professional who can advise you on your options. There are three things you can do with an inherited house: sell it, rent it out, or live in it. Renting out the house could become an extra source of income for you and your family and a great way to build savings, pay off debt, or invest for retirement.
But renting out a house also comes with some potential drawbacks. The ongoing upkeep and maintenance, along with more complicated taxes, may be a source of costly headaches. You also have to decide whether to maintain the property yourself or hire a property manager to do it for you. Discuss your options with a real estate pro who can guide you on what makes the most sense for your situation.
That means you can make some serious headway on your financial goals with that extra cash! They can take the stress out of figuring out what to do with an inherited house.
Decide which items you want to hold onto and then find ways to sell the rest online or through an estate sale. Estate liquidation companies can reduce the stress of clearing out unwanted heirlooms by looking at what you have, writing you a check, and hauling everything away—all in a matter of days. You could also donate furniture, clothes and other items to those who need it most. Alright, things definitely get complicated when it comes to taxes associated with an inheritance, but stick with us here.
Inheritance taxes are a different story. There is no federal inheritance tax, but six states currently have one. Only you will know when the time is right to start thinking about your inheritance. Try and avoid anyone who puts pressure on you to make decisions sooner. Especially if they will benefit financially. If there is a valid will in place the executors will ensure any outstanding debts are paid and the remaining assets distributed in accordance with the will.
In due course the executors will make contact with you to discuss the contents of the will. However, if there is no will the assets of the estate will be distributed in line with the laws of intestacy. The executors, perhaps after taking expert advice, will calculate whether any tax is due. If it is, they will also arrange payment. If IHT is due there may still be steps which could be taken, even after death, to reduce the amount payable.
Expert advice is crucial and could result in a larger proportion of the estate being retained by the beneficiaries and less eaten up in tax. It may take several months for you to receive your share of the estate. Nevertheless, you may still not feel ready to decide what happens to the money.
For that reason, deposit accounts generally only make sense for large amounts of money in the short term. However, the person leaving you the money would, in all likelihood, want you to do what you deem is right and not to make decisions based on what they would have done. Before you make decisions, start to think about your life, and if appropriate that of your family.
For example, what do you want to accomplish in the short, medium and long-term? Exemptions vary by state for siblings, aunts, uncles and sons-in-law and daughters-in-law. Where there is an inheritance tax, the tax rate depends on such factors as the state, your relationship to the deceased and the amount you inherited. Inheritance tax is often discussed in relation to estate tax.
However, these are two distinct taxes. The beneficiary pays inheritance taxes, while the government levies estate taxes on the estate of the decedent. Assets may be subject to both estate and inheritance taxes, neither of the taxes or just one of them. Maryland is the only state that collects both estate and inheritance taxes. So residents of Maryland may encounter both taxes during the probate process. Of course, state laws change regularly. That makes it incredibly important to double check with your state tax agency and an estate planning attorney.
If you inherit stocks, real estate or other items that appreciate, you may have to pay capital gains tax once you sell them. Inherited Roth IRAs, however, are tax free, as are life insurance proceeds.
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