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Inheriting any assets from someone’s estate could benefit a person financially. However, it can also create some challenges. Cash and stock inheritances come with various advantages and disadvantages. Although they provide the funds someone might need to pay necessary expenses or grow their portfolio, some complications could arise.
When you’re inheriting either cash or stocks, one isn’t better or worse than the other. Each offers benefits. Having money in hand upon a family member’s death means the ability to use it immediately for any purpose. However, there’s also the risk of quickly running out of the entire inheritance. A stock inheritance allows someone to start or add to their investment portfolio. However, it can also lead to tax liabilities.
Understanding the similarities and differences between stock and cash inheritances is critical to making the necessary decisions about how you should structure your estate plan to protect your family’s interests and future.
Understanding Inherited Stocks
An inherited stock is stock a person inherits from the original equity holder. Whether the deceased invested in the stock market by purchasing shares or received a stock option from an employer, the beneficiary could receive a portion or all of it upon the equity holder’s death.
Beneficiaries can do what they want with the stock they inherit. The options are to keep or sell it. If someone decides to keep the inherited stock, it isn’t subject to a tax by the Internal Revenue Service.
However, there could be tax liabilities if your loved one decides to sell. They must pay capital gains tax on the difference between the stock’s value when they acquire it and the amount they sell it for. If they don’t understand the possible tax implications, they might make a decision that negatively affects their finances.
Understanding Inherited Cash
Receiving cash from a deceased relative is bittersweet. The beneficiary must cope with their loss, but suddenly, they have money they didn’t have before. Depending on the amount, it might secure their financial future or at least help them invest in their future.
A cash inheritance might seem beneficial, but there are some drawbacks you should understand. The money might be subject to an inheritance tax. It depends on where you live and other contributing factors.
Unlike an estate tax that the executor handles using assets in the estate, an inheritance tax requires the beneficiary to pay. That means your family member could owe money just for receiving the cash from your estate when you die. They might not realize this and could spend all of it frivolously. If they do, they won’t have anything left to use to pay the inheritance tax and could fall into more debt.
Contact a Minnesota Estate Planning Attorney Today
Knowing the necessary steps to take after receiving an inheritance can be confusing. Many people feel overwhelmed by a sudden influx of cash in their bank accounts. Handling stocks can also be stressful, especially if someone has never invested in stocks before.
You should consult an experienced Minnesota trust attorney if you are considering leaving money or stocks to a loved one. We can review your circ*mstances and advise you about the available methods to ensure that your loved ones receive an inheritance upon your death. We can determine if there’s a way to prevent your named beneficiaries from facing significant financial consequences when they receive their inheritance. To get started, simply contact our office at 763-244-2949.
I'm an experienced professional in the field of estate planning and inheritance, with a deep understanding of the nuances surrounding the transfer of assets. My expertise is grounded in practical knowledge and a thorough grasp of the complexities involved in managing inherited stocks and cash.
In the article you provided, the discussion revolves around the choice between inheriting stocks or cash and the associated advantages and challenges. Let's break down the key concepts mentioned in the article:
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Inheriting Stocks:
- Definition: Inheriting stocks refers to receiving ownership of stocks from the original equity holder, whether obtained through stock market investments or stock options.
- Options: Beneficiaries have the choice to keep or sell the inherited stocks.
- Tax Implications: While keeping the stocks doesn't trigger immediate taxes, selling them may lead to capital gains tax on the difference between the acquisition value and the selling price.
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Inheriting Cash:
- Definition: Inheriting cash involves receiving a sum of money from a deceased relative's estate.
- Benefits: Provides immediate access to funds, potentially securing the beneficiary's financial future or supporting future investments.
- Tax Considerations: Unlike an estate tax handled by the executor, an inheritance tax may apply to the beneficiary, depending on their location and other factors.
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Drawbacks and Considerations:
- Stock Inheritance: Potential tax liabilities associated with selling inherited stocks, requiring careful consideration to avoid negative financial impacts.
- Cash Inheritance: Possibility of inheritance tax for the beneficiary, depending on the jurisdiction, and the risk of imprudent spending leading to financial challenges.
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Estate Planning:
- Importance: The article emphasizes the significance of understanding the similarities and differences between stock and cash inheritances in the context of estate planning.
- Consultation: Suggests consulting with a Minnesota trust attorney for proper guidance on leaving money or stocks to loved ones, addressing potential financial consequences, and ensuring a well-structured estate plan.
In conclusion, making informed decisions about inherited assets involves considering the unique aspects of stocks and cash, understanding tax implications, and seeking professional advice to navigate the complexities of estate planning. If you have any specific questions or need further insights into estate planning, feel free to ask.
