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What beneficiaries should know about their inheritances

On Behalf of | Jan 30, 2018 | Estate Planning |

There are many reasons people may opt not to discuss their assets with individuals to whom they plan to gift them too when they die. However, Ohio parents who plan to leave an inheritance for their children may want to make sure that the beneficiaries are prepared to receive it and are able to make the important decisions that may come with it.

People who are to inherit the proceeds of an IRA should be aware that any funds they receive will be taxed. They do have an option to allow the funds to remain in the IRA for a period of time while receiving the required minimum distributions that are calculated based on how long they are expected to live. They may also decide to pursue the other option of liquidating the account with the next five years to receive a lump sum payment, but they should be prepared for a considerable tax hit.

It may also be necessary for beneficiaries to be knowledgeable about IRA rollovers. A beneficiary who is not a spouse of the decedent will not be able to transfer those funds into a 401(k) or IRA without the sum being classified as taxable income.

Another type of asset that can have steep tax price if it is inherited are non-retirement, tax-deferred assets, like annuities. Beneficiaries of such assets will receive a Form 1099 that will detail any untaxed growth that has to be included in their gross income during tax time. An attorney who practices estate planning law may advise clients of what legal tools to use to ensure that the recipients of certain assets are not left with a heavy tax burden. This could include the use of a trust.