Hi, my name is Michael Carrico, and I am the Wealth Manager in Howe & Rusling’s Colorado Springs office. 

Today, I want to walk you through what to expect if you’re receiving an inheritance. While this can be a complex process, understanding some basics can help it feel less overwhelming. Whether you’re inheriting money, investments, property, or other assets, this quick overview should help you get a sense of what might be involved. 

Claiming Assets and The Probate Process 

First, when someone passes away, their estate usually goes through a legal process called probate. Probate is essentially the way a will is legally recognized, and it ensures that the deceased person’s assets are distributed according to their wishes—or according to state law if there’s no will. 

During probate, the executor of the will—who is often a trusted family member or a lawyer—will identify all the assets in the estate, pay off any outstanding debts or taxes, and then distribute what’s left to the beneficiaries. Probate can take a few months to over a year, depending on the complexity of the estate and if there are any legal challenges. 

However, certain types of assets can bypass the probate process entirely, allowing them to be transferred directly to beneficiaries without going through the court-supervised probate process. By bypassing probate, these assets are often distributed more quickly and privately, helping beneficiaries avoid some of the legal fees and delays associated with the probate process. 

First, jointly owned assets with rights of survivorship are the fastest for a survivor to receive because ownership passes directly to the surviving owner without the need to involve the courts or open new accounts. Common examples of this type of asset are a house owned by a married couple or a jointly owned bank or investment account. While it is important to update the titling of the account and remove a deceased party’s name for security purposes, there is effectively no change in how the surviving owner can operate the account or use the property in question. 

The second fastest type of asset for a beneficiary to receive are designated beneficiary accounts as they typically only need to contact the institution holding the asset and provide proof of their identity along with a death certificate. Once this is done, they can open an account in their own name and take over ownership of the inherited assets. Common examples of designated beneficiary assets include life insurance policies, retirement accounts such as IRAs or 401(k)s, and accounts designated as payable-on-death or transfer-on-death also known as POD and TOD accounts. These assets are distributed according to beneficiary designations that were set up by the account holder before their death, allowing the funds to pass directly to the named beneficiaries. 

Additionally, assets held in a trust will generally avoid probate, as the trust owns the assets rather than the individual. A very commonly used type of trust is a Revocable Living Trust which is often designed to provide instructions on distribution of estate assets without the need for probate. However, there are many types of trusts, and they can vary widely in complexity. For example, a trust might provide instructions to distribute all funds immediately with specific guidelines or it may specify that funds can only be accessed after a certain age or for pre-defined expenses like education or healthcare. When there’s a trust involved a trustee will manage the inheritance according to the rules outlined in the trust documents. Beneficiaries of trust assets will want to consult with the trustee of the trust. It’s important to understand these conditions so you know when and how you’ll be able to access the funds or assets. If you find yourself named as trustee of a trust and you aren’t sure what to do, it is wise to contact a lawyer familiar with trust law to guide you through your responsibilities. 

Taxes and Fees 

Next, let’s talk about taxes and fees. 

Many people are aware of estate taxes but may not be familiar with how they work. In the U.S., most estates currently don’t have to pay federal estate taxes because the estate tax exemption is over $13M per individual under current laws. While this exemption is set to be cut in half in 2026 when the current law expires, it ultimately affects a very small number of estates. About a dozen states also assess estate taxes at the state level. As a beneficiary, what’s important to know is that estate taxes are paid by the estate and payment is the responsibility of the estate executor. So, unless you find yourself both a beneficiary and executor for the estate, you do not need to take any action regarding estate taxes. 

However, there are six states which impose an inheritance tax as of 2024: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Depending on where you live, your inheritance might be subject to estate taxes, inheritance taxes, or both. In Maryland, an estate could be subject to both federal and state estate taxes and an inheritance tax. The inheritance tax is the responsibility of the beneficiary and state laws and deadlines vary. If you live in a state subject to inheritance tax, it is wise to consult with a financial advisor or accountant to ensure you remain compliant with the laws. 

Other costs, like attorney’s fees and court costs, can also come out of the estate. Once again, these fees are the responsibility of the executor of the estate, but it’s good to understand these possible deductions so you have a clear idea of what your actual inheritance will be. 

What to Do with the Assets 

Once the estate is settled and the assets are in your name, the next question is what to do with your inheritance. Inheritances can come in many forms—cash, real estate, stocks, personal items, and more. Sometimes you might receive a physical item, like a family heirloom, but other times you’ll get a financial asset. If you’re inheriting cash, it’s usually straightforward, but for other assets, you may have to decide what to do with them. 

If you inherit a house, you’ll need to consider if you want to keep it, rent it out, or sell it. If you inherit a house along with multiple beneficiaries, that can complicate the matter. If that real estate is in a state other than your primary state of residence, you may need to file 

a non-resident state income tax return whether you receive rents from the property or a gain from the sale of the property. Each choice has its own tax implications. This is often a level of complexity most people have not experienced before, so consulting a financial advisor or an accountant can help you make an informed decision. 

If you inherit investments, there are both investment strategy and tax considerations to address. Beneficiaries will often find that what was appropriate for their loved one may not be appropriate for them. It is important to review the asset allocation and investment strategies of your inherited investments to determine if changes need to be made to better align with your own goals. 

Depending on the type of inherited investment account, those changes can have tax implications. If you inherit a retirement account, you may need to begin taking payments from the account immediately and those payments may or may not be taxable. If you inherited a non-retirement investment account, sometimes called a taxable investment account, then you likely received a step up in basis on your inherited assets and you may have the opportunity to reallocate your investments with minimal tax implications. 

The bottom line is that there will be decisions to make with inherited assets. Some of those decisions, like RMDs, have a deadline while others are more flexible. 

Inheritance is Both Financial and Emotional 

Lastly, it’s worth mentioning that receiving an inheritance can be an emotional process. It often comes at a time of loss, grief, and stress when our values and priorities may change. Decision making can become more difficult for a variety of reasons. It’s okay to take time to grieve and process before making any big financial decisions. If the thought of deadlines looming is causing additional stress, then consulting with a trusted financial professional to determine what needs to be addressed now and what can wait may relieve some stress and give you room to breathe. 

It’s also normal to feel attached to inherited assets and be reluctant to make changes. While it’s important to align your investments with your own personal goals, it’s also important to let your team know what matters to you and why so that they can help you balance your financial needs with your emotional needs. 

Closing 

Ultimately, inheriting assets can be both a privilege and a responsibility. By understanding the probate process, taxes, asset distribution, and any conditions, you’ll be better equipped to manage the inheritance in a way that aligns with your goals and values. Once 

again, each situation is unique just like each beneficiary is unique. As a beneficiary, it is important to know that these differences exist. If you don’t feel equipped to navigate the complex landscape of your inheritance alone, then seeking the services of a competent financial advisor, accountant, attorney, or all three may be the right decision. I hope this overview has helped and thank you for listening! . 

Disclosures This information is provided for educational purposes only and is not intended as financial, tax, or legal advice. Each individual’s financial situation is unique, and inheritance matters can vary greatly depending on individual circumstances, state laws, and changes to tax regulations. Before making any financial decisions, you should consider consulting with a qualified financial advisor, tax professional, or attorney who can take your specific situation into account. Investments in securities carry risks, including the risk of loss. Past performance is not indicative of future results. Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals. Any information provided by Adviser is for illustrative and educational purposes only, is intended to provide general information only and should not be construed as legal advice nor does its preparation form an attorney-client relationship between Howe & Rusling, the attorney and the client.