Inheritance is property, rights, and obligations granted to a person upon the owner’s death, usually a parent or grandparent. The heir is entitled to possess these assets by law or by a will written by the original owner. Inheritance can become a blessing because you receive money or property that is useful for life or a burden. After all, it involves taking on often tedious and costly responsibilities.
Receiving money or property involves taking on tax, financial and legal responsibilities. In most cases, recipients do not know what steps to take and wonder: can I deposit an inheritance? Or can you deposit cash inheritance? In this guide, we will show you what the steps to follow are.
What is considered a large inheritance?
Inheritance can be a dream come true, but it can also be a very exhausting experience if not handled carefully. At the time of inheritance, each person receives a particular amount of money or property; therefore, the process is different and the percentage obtained varies. In that case, there are inheritances of various amounts, some considered average and others “a large inheritance.”
The average American who receives an inheritance gets a standard percentage. The average amount received is $46,200. However, there are some cases where a “large inheritance” is received. To know what steps to take, you must know whether or not you are receiving a large inheritance.
A “large inheritance” is considered to be $100,000 or more. Receiving this amount can be exciting, but we recommend you talk to a financial advisor to invest the money correctly.
What do you do if you inherit a large sum of cash?
Inheritance usually comes from parents and grandparents. The average amount Americans receive is $46,200, while the average wealthy family receives $719,000.
Information compiled by the Organization for Economic Cooperation and Development states that inherited wealth in the United States accounts for 50 to 60% of the private wealth since the turn of the 20th century. If you received a large inheritance and don’t know what to do, follow these:
Step One: Seek professional advice
The first thing you should do when you are notified that you will receive an inheritance is to seek professional help. Arranging a will or probate takes time, and determining what assets you are entitled to be complex. For this reason, hire the following professionals:
- A tax accountant: all inheritances involve tax consequences, even more than you might imagine. Depending on how you receive the money, inheritance taxes are determined. It is important to remember that you should not invest money to pay the tax; the total will come from the inheritance. This professional will help you pay what is fair and avoid you paying more for receiving the inheritance than for the estate itself
- A lawyer: The lawyer will carry out the entire legal process of the inheritance. With the lawyer’s help, they can manage the transaction of the assets and defend you if a sibling contests the will
- A financial advisor: After identifying how much money you will receive, a financial advisor can help you define your financial goals and prevent the funds from being squandered
Step Two: Identity what you inherited
After correctly choosing each professional, it is important to consider the number of assets or money to be inherited. Generally, inheritances do not end up in the form of a check with several zeros deposited in your account; they are a combination of assets that must be dealt with separately. In any case, you can inherit in the following forms:
- Cash: you can deposit it, spend it or invest it in anything you want
- Trusts: there are different types of trusts, and each has a way to be used. You should consult with your lawyer to make the right decisions
- Retirement accounts: if the IRA or 401(k) inheritance is left to you by a spouse, they can easily change it to your name and receive a lump sum payment, although you must pay income taxes on the money. If the inheritance does not come from a spouse, the process is more complex
- Property: Inheriting a house can be a dream, although it has some complications. When the property passes into your name, you must pay all related taxes
Step Three: Pay off debts
One of the benefits of receiving an inheritance is paying off high-interest personal debts related to credit cards or loans. In some cases, they use it to complete a mortgage payment or invest the money in new ventures that allow them to improve their economic status.
In addition to paying your bills, some inheritances come with debts from the original owner that you must also pay off. As well as taxes and other liabilities. In 2022, taxes apply to inherited estates with over $12.06 million. Depending on the state where the inheritance is located, you may have to pay different inheritance taxes.
Step Four: Invest the money
In this last step, the help of a financial advisor is impressionable. When they receive a large sum of money, some people tend to squander it on things with no future benefits. Some smartest decisions are to buy a house or top up mortgage money. Be careful about investing your entire inheritance in the down payment on the house if you can’t afford the subsequent monthly mortgage payments. It would help if you studied the long-term outlook to make the right purchase and avoid the possibility of going into debt.
Putting money into a child’s college fund is also a smart investment to save money for college; this way, you avoid one of the most problematic financial sources for most Americans. Sign up for a savings plan that allows you to plan better.
How to deposit a large cash inheritance?
As previously explained, there are different ways to receive an inheritance (property, cash, trust, or retirement accounts). If you receive a large amount of money, depositing it in a bank or federally insured credit union is a good idea.
It is important to know that the money will not add interest, and as long as it is within legal guidelines, it will be safe for you to decide what to do with it later.