Brandon, FL, Accountant Explains Strategies for Maximizing an Inheritance

By August 19, 2020 No Comments

Many people have experienced the unexpected passing of a loved one, as well as the uncertainty that follows when there is an inheritance. An influx of money would seem to be a godsend that can help pay off debts, gain financial independence, or pursue a long-delayed dream. However, if an heir does not understand how to manage the inheritance, he or she can end up with little to no benefit from the financial good fortune.

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As a full-service Brandon, FL, tax accountant, Accurate Tax & Bookkeeping Services has extensive experience counseling individuals who have recently come into an inheritance. The Tampa Bay accountant is sharing guidelines to help heirs make the most of their inheritance.

Create a Financial Strategy

The first step is to make a plan. One of the most common mistakes heirs fall into is using the money up quickly, and many people will spend away their inheritance in around two years. Another misstep is to make high-risk investments. Because heirs did not put in the labor to create the funds, they may not be as guarded with inheritance money as with money earned through their own labor.

When creating the financial plan, determine current goals and identify obstacles to those goals. Once goals have been pinpointed, the heir can see how the inheritance money can contribute towards realizing a long-term financial plan. A plan may include some or all of the following goals:

  • Eliminating high-interest debt and improving credit score
  • Starting a small business
  • Contributing to a college fund
  • Funding retirement

Move Forward Slowly

When there is a windfall profit, the temptation is to act immediately. However, dealing with short-term concerns without considering long-term needs can leave people in a precarious position. For example, an heir pays off his mortgage payments without laying aside any money for retirement. He may experience the satisfaction of being debt-free, but he risks ending up in poverty in his twilight years.

It is best to wait for a few weeks before moving forward. The death of a loved one, coupled with the provision of an inheritance, can introduce complex emotions that need to be processed before any significant financial decision is made.

Consult a Financial Advisor

When inheriting large sums of money, it is always wise to seek advice from an expert who can offer a balanced, dispassionate perspective. Take the time to thoroughly vet a financial advisor, and do not rush the process. Heirs will want to find an experienced advisor who can guide them down the path that is best for their future.

The three most important advisors to hire are a financial planner, an accountant, and an estate planning attorney. This team of consultants will help the inheritor achieve goals and make smart, informed decisions. According to Bankrate.com, “Complicated assets, such as a family business or an asset you’ve inherited with others such as a home, will probably require a professional to help sort out the options.”

Ask a Tax Expert About Navigating Tax Issues

While the federal government currently does not impose an inheritance tax, the heir could potentially be taxed at the state level, depending on the benefactor’s place of residence and the heir’s relationship to the deceased.

Most states do not have an inheritance tax, but the following six states are an exception:

  • Pennsylvania
  • New Jersey
  • Maryland
  • Iowa
  • Kentucky
  • Nebraska

Another tax to consider is the estate tax. Bankrate.com states, “The federal government charges a 40 percent tax on assets exceeding $11.4 million ($22.8 million for married couples) no matter the state you live in.” In addition, ten states and the District of Columbia charge an estate tax with separate rules and exemptions. Wading through estate tax matters is complicated, so the best course of action is to work with a tax professional.

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Conclusion

Receiving an inheritance is significant, and the emotions, whether from the excitement of new financial opportunities or the grief over the passing of a loved one, can be overwhelming. Take time to think and to grieve, then chart a course forward. Every financial strategy will look different, but with a solid plan and wise counsel from financial advisors, people can improve their situation and prepare themselves for a better future.

For advice about inheritance matters or to learn more about tax and accounting services in the Tampa Bay area, visit the Accurate Tax & Bookkeeping Services website at brandonaccountant.com. Contact the office by phone at (813) 655-9702.

Greg Menia

About Greg Menia