Inheritance has traditionally been associated with wealthy individuals. However, today, this is not the case. An inheritance can mean anything from receiving a trust fund, a beat-up old car, or a few hundred dollars. Leaving an inheritance can help protect loved ones and create generational wealth.
Here, we’ll discuss what inherit means, common types of inheritances, and how to structure an inheritance.
What Is an Inheritance?
The term inherit means to receive money, property, or a title at the death of the previous holder. You may inherit property as a beneficiary, in which case you were specifically named in an instrument to inherit the property, like a last will and testament or trust. Or, you may inherit property as an heir, which means that you have the legal right to inherit the property as a matter of law when there is no legal document that provides for someone else to receive the property.
Often, an inheritance is money or other property that a parent leaves to their child or another relative. It is important to note that inheritance is usually considered separate property in case the person who receives it is married but then later divorces.
Inheritor refers to the person who inherits something.
What Type of Property Can Be Inherited?
An inheritance can consist of one or more pieces of property. The property can take many forms, including:
- Real property, including land, a family home, vacation home, or rental property
- Vehicles, including cars, planes, boats, trailers, and manufactured homes
- Cash
- Stocks, bonds, and other investments
- Bank accounts
- Life insurance proceeds
- Personal property, like furniture, jewelry, and family heirlooms
- Collections like valuable art or coins
- A family business
- Other business interests
How to Give Property to Others at Death
The method used to give property to others at death will vary depending on the particular type of property. Some common examples include:
| Type of Asset | Method of Conveying |
| Real estate | By Lady Bird deed, joint tenancy with right of survivorship deed, or a bequest in a last will and testament or trust |
| Vehicle | By joint tenancy with right of survivorship, beneficiary title, or bequest in a last will and testament or trust |
| Checking or savings account | By joint tenancy with right of survivorship, payable on death designation, or bequest in a last will and testament or trust |
| Retirement account | By beneficiary designation form |
| Stocks or bonds | By transfer on death form or bequest in a last will and testament or trust |
| Life insurance proceeds | By beneficiary designation form |
| Personal property | By bequest in a last will and testament or trust |
What Happens to Property When Someone Dies?
State law can vary about what happens when someone who owns property dies. However, the general process is described below with two common scenarios: the person dies with a valid last will and testament or intestate.
A Last Will and Testament
Your last will and testament provides instructions on how you want your property ultimately distributed after your death. You name an executor in your last will and testament who you want to handle your final affairs. The executor will be responsible for:
- Probating the Will
Your executor must present the probate court with your original last will and testament and request to be appointed as the executor. Your executor will then receive legal documents that give them the right to act in this official capacity. This officially begins the probate process.
- Creating an Inventory of Your Assets
Your executor will be responsible for safeguarding your assets, so they will need to identify, collect, and value your assets. Depending on the state and the type of probate, your executor may need to prepare documentation that details this information. Your executor may access your paperwork to complete their duty.
- Providing Notification
Your executor is responsible for notifying your heirs, beneficiaries, and creditors of your death, their appointment, and the timeline for them to make claims against the estate. Your executor may need to pay out of the estate funds for publication of this notice in a local newspaper.
- Resolving Claims
Your executor has to resolve valid claims against your estate with estate assets before they can distribute these assets to your loved ones. There may be many final bills to pay, such as:
- Final hospital and medical expenses
- Funeral and burial costs
- Credit card payments
- Utility bills
- Personal loans
- Mortgage
Your executor will also file any required federal estate tax and state estate tax return and pay any owed taxes, including income taxes.
- Distributing Assets
Finally, your executor will distribute your assets to your loved ones, according to the terms of the will.
No Last Will and Testament
If there is no last will and testament, the process will still follow many of the same procedures. However, there is no will to probate, so an interested party will need to report the death to the local probate court and ask to be appointed as the administrator or personal representative. This person will then be responsible for notifying the legal heirs of the death, their appointment, and the case.
This can add an extra layer of complexity because the administrator may not know all of the decedent’s family members. The next of kin may have a right to the property, so the administrator will need to try to locate them. At the end of the probate process, your property will be distributed to your heirs according to the laws of intestate succession in your state. It probably won’t matter if you promised something verbally to someone. State law will trump and dictate that your property go to your closest living relatives, regardless of your personal relationship with them.
Your personal representative will still be responsible for fulfilling the other duties, including:
- Inventorying the probate estate assets
- Notifying relevant parties of your death and their appointment
- Filing legal paperwork with the probate court
- Resolving debts and claims against your estate
- Filing your final income tax return
- Distributing assets to your heirs
How to Create an Estate Plan
You can provide an inheritance to your loved ones through careful estate planning. You can work with an estate planning lawyer, or you can prepare your own estate planning docs with PassDown.
Every estate is different, but some of the common steps that are part of the estate planning process include:
Reviewing Your Assets
You can review your financial picture to get a better sense of what you may be leaving behind at the time of your death. Write down all of your assets and who you want to receive them, including:
- Real estate
- Financial accounts
- Digital assets
- Personal property
- Vehicles
- Intellectual property
- Items of sentimental value
Creating Your Last Will and Testament
Your last will and testament can provide basic instructions about who should receive your property after your death. You can also name an executor to carry out your wishes and a legal guardian for your minor children.
Creating a Trust
A revocable living trust is part of many estate plans because it allows you to provide more detailed instructions about how your assets should be handled. Additionally, it can provide instructions that are followed during your lifetime, such as if you become incapacitated. A trust can also hold assets for the benefit of your children or other minor beneficiaries.
Updating Your Plan
You may want to make changes to your estate plan as you acquire more property or life changes occur. An annual review can help you make changes as things in your life progress. When you make new legal documents, destroy the old ones to avoid possible confusion. Let your executor know where to find your will and other estate planning documents.
Inheritance FAQs
Here are some of the most commonly asked questions about inheritances:
Will I Have to Pay Estate Tax?
The current federal estate tax exemption for 2023 is $12.92 million per person, so you probably won’t have to worry about these taxes unless the value of your estate exceeds this amount. However, the law that established this limit is expected to sunset in a few years, so the situation could change.
Some states charge estate tax on estates with values as low as $1 million. Some states impose inheritance tax on the recipient.
When Will I Receive Money from a Will?
If the estate has to go through the formal probate process, it may take a year or longer before you receive the property left to you. This is because distributing assets to beneficiaries or heirs is the last step in the process. If your relative’s estate goes through informal probate or can be distributed via a small estate affidavit, the process may be quicker.
Do I Have to Accept an Inheritance?
No, you do not have to accept an inheritance. However, if you receive public benefits and you accept your inheritance, you could lose your benefits. However, you could also lose your benefits if you don’t accept funds that would allow you not to depend on government benefits. For this reason, it’s important to work with an experienced lawyer who can help plan for such possibilities.
What Should I Do with an Inheritance?
This is up to you. However, you can review your financial situation and determine what would be in your best interest. You could potentially roll over the inheritance into a retirement account or use the money as a down payment on a house, for example. A financial advisor could give you advice based on your particular situation.
Takeaway
An inheritance can be a good thing, but you may need to take special care to protect your loved ones.