I’m a Financial Planner: 4 Questions To Ask About Your Inheritance

Nicole B. Simpson, CFP

Wed, Jan 10, 2024, 6:00 AM 4 min read

Expecting an inheritance? There are some critical questions heirs may consider asking in advance, especially when they are planning their financial future.

As the CEO of Harvest Wealth Financial and a financial planning practitioner, I suggest that prospective heirs ask pointed questions if they anticipate an inheritance. A large sum of money can help you to prepare for your financial future more efficiently.

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Legacy planning is oftentimes complex and difficult to navigate. However, if a family can address these questions beforehand, it will be most helpful for the heirs during a time when they are experiencing a devastating loss. Whether you are a child, a sibling, or even a family friend, an inheritance can drastically alter your financial future.

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‘Where Are Your Important Papers?’

Writing out a list of your assets and liabilities can prove to help assess an overall estate. Things that should be included in the important papers are the will, any life insurance policies, and prepaid burial policies.

The will identifies the person named to manage the estate, the final wishes of the recently deceased and the beneficiaries. The life insurance policies can be used to pay for the burial expenses if prepaid burial policies have not been secured. Also, keeping account information along with passwords written down gives the beneficiaries an idea of what to look for and where things are located. It is necessary to leave that information in an easily accessible location.

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‘Who Are the Primary Points of Contact?’

A very important question a beneficiary should ask is who has been identified as the executor of the estate. That person will be responsible for handling the final affairs of the recently deceased. The executor should have the names of the professional team that helped manage the decedents’ financial affairs.

If the beneficiary is also the executor, it is helpful to have the names and contact numbers of any financial advisor(s), attorney, or tax consultant. Professional support has the skillset and experience to help navigate a decedent’s final wishes seamlessly.

‘Will I Have To Pay Taxes?’

It is best to understand the source of funds you will receive to answer the questions regarding tax liability.

For example, an individual receiving life insurance proceeds typically does not pay taxes. If one receives a stock inheritance, they are responsible for taxes on the change in the stock price that may have occurred between the time the stock was inherited and when the stock was sold. A beneficiary of any retirement assets should meet with a professional before touching the money because your relationship with the decedent will ultimately determine your potential tax liability.

‘Will Receiving an Inheritance Impact Me Negatively?’

There are several scenarios where a “negative inheritance” is possible.

If there is an anticipated inheritance from an aging adult who is married or has a child as a caregiver, the loss of assets over time coupled with the cost of care for that aging adult can outweigh the gift, leaving the surviving spouse vulnerable to not having enough resources for their own final stages of life. For the child, caring for an aging parent can affect their own ability to save effectively for their retirement.

If a potential beneficiary has special needs or disabilities and receives Supplemental Security Income, they should consult with a professional to determine the impact this can have on their benefits.

An heir should always keep in mind that an inheritance has the potential to change one’s financial landscape. I recommend you take a moment to process the loss of your loved one first. Then you should solicit the advice of a financial planner so you can begin to put a strategic plan in place to spend or invest the windfall of money you are preparing to receive. The ability to change the trajectory of a family’s financial status with proper planning and good stewardship can have a positive impact on creating generational wealth.

Editor’s note: Dr. Nicole B. Simpson is a dedicated certified financial planner board member of the CFP Board Center for Financial Planning Diversity Advisory Group and Chair of the Generation X Community Association.

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