Why You Might Want to Walk Away from Your Inheritance
While inheritances are often seen as financial windfalls, there are circumstances when accepting one might not be the smartest move. Before you say “thank you,” consider the impacts it may have on your finances and relationships.
The Great Wealth Transfer: A New Perspective on Inheritance
As we step into a new era of wealth distribution, the great wealth transfer is underway. An astonishing $124 trillion in assets will change hands by 2048, primarily from baby boomers to their heirs. According to Cerulli Associates, it’s projected that inheritors will receive roughly $106 trillion of this wealth, much of which will include diverse assets such as cash, stocks, bonds, real estate, and personal property.
When to Consider Saying No
Declining an inheritance may seem unusual, but there are several valid reasons to contemplate this option. Consulting a financial planner or accountant is wise, but here are some key scenarios where it might be beneficial to walk away:
1. Potential Tax Complications
If inheriting assets threatens to complicate your estate or create a hefty tax burden for your heirs, consider refusing it. Certain assets, such as money in an IRA or 401(k), can generate taxes on distributions, potentially elevating you into a higher tax bracket.
2. Family Friction
Inheriting assets could lead to family disputes. Accepting more than others may be perceived as favoritism, leading to emotional fallout. “If mom leaves one child more than another, it can create a rift that may not be worth the financial gain,” says Patrick Simasko, an elder law attorney.
3. Burdensome Properties
Consider refusing unsellable or hard-to-manage properties. “Large vacant lots or timeshares can drain your resources and offer little return,” Simasko advises. Evaluating the desirability of an asset before accepting it is crucial.
4. Government Benefits
If the inheritance pushes you above income or asset limits for programs like Medicaid or Supplemental Security Income (SSI), it could jeopardize your eligibility. It’s worth noting that disclaiming an inheritance counts as gifting, which isn’t allowed in many cases. Instead of refusing outright, experts suggest using the inheritance responsibly to maintain eligibility.
Navigating the Disclaiming Process
If you’ve decided that walking away from an inheritance is the right move for you, it’s essential to know how to do it correctly:
Key Steps to Decline an Inheritance
Nine-Month Window: You have up to nine months after the inheritance comes to light to decline it. The process can be lengthy, involving paperwork and possibly the notarization of documents.
Irreversible Decision: Remember, once you disclaim an inheritance, the decision cannot be undone.
No Prior Benefits: You must not have accepted any benefits from the assets prior to disclaiming.
- State Regulations: Each state has its own rules regarding disclaiming inheritances. Be sure to check local laws to ensure compliance.
What Happens to Disclaimed Inheritances?
If you choose to disallow the inheritance, it will pass to the next beneficiary in line. If no one else is designated, the asset may go through the probate process to be allocated to someone else related to the deceased.
Conclusion
While an inheritance can be a significant financial benefit, it’s essential to weigh the emotional and financial ramifications of accepting it. By carefully considering your options and seeking professional advice, you can make a decision that aligns with your financial goals and family harmony.
For more insights on financial planning and inheritance, check out resources from USA Today Money.
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