What to Do—And Not Do—When You Get an Inheritance

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By Gary M. Landau, Esq.

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What to Do and Not Do When You Get Inheritance | Coral Springs, FL | Call (954) 979-6566

Whether you’ve left a lot of money from an inheritance or a smaller amount, receiving cash unexpectedly can leave people dizzy with possibilities. Can you finally take that European vacation you’ve always dreamed of? Buy a hot convertible? Quit your job?

Experts are clear that you should do none of those things—at least not for about a year after you’ve received this money. 

As a probate attorney in South Florida, I have many clients who are fortunate to have been left an inheritance from the estate of their parents, other relatives, or good friends. I understand the temptation to do something fun and exciting with money you didn’t have to work for (at least not in the traditional sense; if you took care of your elderly parents that were plenty of work). 

But experts agree that treating an inheritance like Monopoly money is a mistake.

According to the Federal Reserve, about 30 percent of all inheritances range from $50,000 to $250,000, with about 15 percent being even more than that. But even if you receive less, it can still have an impact on your life.

The New York Times recently ran an article showcasing various beneficiaries and how they dealt with their newfound gains. For example, the article shares the story of two sisters who each received several hundred thousand dollars when their father passed away. One invested the money wisely, helping to ensure a better future than her pension as a retired teacher was providing. The other bought a new car and condo—and subsequently struggled to meet the monthly payments of her new home.

Similarly, I once had a client who couldn’t believe the amount of money his seemingly poor father had accumulated in his bank accounts when he died. The man promptly booked a cruise-around-the world and took several other extravagant vacations. When he came back from the last one, he was as broke as when he started. (And obviously, broker than his father had been.) 

The Time article quotes a money manager as recommending the creation of a “decision-free zone” for up to a year, an idea I especially love, having seen some clients, including that man and others, immediately go the route of the profligate sister. 

During this cooling-off time, you place the money in a federally insured bank account (or more than one, if it’s over the insured limit of $250,000). You then meet with a financial advisor, accountant, tax lawyer, and other professionals before doing anything else with the money.

You may be wondering why an accountant and tax lawyer since inheritances are not taxed as income. It’s true that most estates are not taxed (unless they meet the taxable threshold, a whopping $11 million in 2019), and that the IRS does not consider a cash inheritance to be taxable. 

But some parts of inheritance may still necessitate payment. For example, if you are left the property and that property appreciates after the person’s death but before you have sold it, you might need to pay a tax on the appreciation. Or, if you are left a rental property, you’ll likely have to pay tax on the income that is continually produced from the tenants. You’ll want to work with an accountant or tax lawyer to sort these types of things out.

What’s more, if any of the money was in the deceased person’s I.R.A. when they died (a common occurrence), you’ll need a professional to advise you about how to handle the money so you don’t get hit with an unexpected tax burden. The Times article describes one man who moved a substantial amount of I.R.A. money directly into his brokerage account—and suddenly owed $200,000 in taxes. 

Since an inheritance may be the most money many people will ever get at one time, it’s important to consider how this gift can meet your lifelong needs. If you don’t have money in an emergency fund, or haven’t put away enough for retirement, these are probably better bets than blowing a wad in Monte Carlo, however fun that might be. Your financial advisor can help you plan for the most appropriate, diversified portfolio for your needs and situation.

This is not to say you can’t do some wonderful things with inheritance money. Once you’ve passed through the decision-free zone, spoken with professionals, and made your smart money moves, you may be able to treat yourself a little or to do things that honor the deceased. It can feel good, say, to go to Israel and plant a tree in honor of a parent who always supported that country. Or to give some money to a charity to help fund a potential cure for the disease that felled them. 

Just keep in mind that the best way you can honor a loved one who cared enough about you to leave you an inheritance is to care enough about yourself to take care of your own future needs.

Probate Attorney Coral Springs

Have the Law Office of Gary M. Landau by your side. The Law Office of Gary Landau is located in Coral Springs, Florida, and is rated 10 out of 10 by the legal website AVVO. For more information or free phone consultation, call 954-979-6566 or email us. Attorney Gary Landau personally returns all calls to him.

Law Office of Gary M. Landau P.A.
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Frequently Asked Questions

A will is the simplest way to ensure that your funds, property and personal things will be distributed after your death the way you want them to. Even if you have very few assets, you will benefit from having a will. About half of all Americans die without a will (known in legal terminology as dying intestate). Without a will to indicate your wishes, the court steps in and distributes your property according to state law. A will ensures that your assets will be given to family members or other beneficiaries you designate.

 

Having a will is doubly important if you have young children. One section of the will allows you to designate a guardian for them in the event of your death. Without a will, the court will appoint a guardian for your children, who may not be the person you desire.

Many Florida residents have out-of-state wills, drawn up while they were still living among the hills of North Carolina or the hubbub of New York. If the will was valid according to your old state’s laws at the time you made it, it is still legal in Florida. However, if you are a Florida resident, you may benefit greatly by having a new will drawn up in Florida, because it will likely be more easily admitted to probate.

 

It is important to know that each state has its own requirements for what makes a will a legally binding document. For example, Florida doesn’t recognize handwritten wills that haven’t been witnessed (known as “holographic wills”), or oral wills not put into writing, even if other states okay them. There’s also the matter of Florida estate law. In this state, for example, your surviving spouse is entitled to 30 percent of your net probate estate, regardless of what you say in your will. The spouse may also have a “Homestead” interest in property you share here, even if you want your house to go to someone else. In fact, all real property owned in Florida will be subject to this state’s laws, even if you’re a snowbird maintaining a residence in the state where your will was drawn up. Other peculiarities also exist, which is why a Florida will could make things much easier for your heirs.

 

If you would like to have me review your current out-of-state will, I am happy to do so without charge. If it turns out to be in accordance with Florida state laws and procedures, you can continue to rely on it. If not, however, your heirs would rather you discover that now.

It is a good idea to re-read your will every few years to be sure it reflects up-to-date realities (you may not want to leave your heirloom to a niece you are no longer speaking to, nor have someone be named your child’s guardian if they have taken seriously ill since you drafted your will). It is especially important to reexamine your will if:

 

  • You have gotten married since it was last drafted;
  • You have made bequests to people who have fallen out of your favor or are no longer living (I recently updated the will of a man who had left everything to his first wife, who was long deceased), or you have not included people who are now dear to you;
  • You would like to change the person named as the personal representative of the estate. (Note: Florida law does not allow a nonresident of the state to serve in this position, unless it is an immediate family member or certain other relatives);
  • You have acquired pricey or sentimental items that are not accounted for in your will. Do note, though, that Florida law allows you to attach a separate personal property memorandum to your will, detailing who will get which specific items. This list can be changed whenever you want.

Perhaps I should answer this question with where not to store it: in a bank’s safety deposit box. Although it may seem logical to put this with your other important papers, it is often difficult for your heirs to gain access to the box once you die, since the box is sealed then and must be opened in the presence of a bank employee.

 

One good option is to leave your original will with the attorney who drafted it, making copies for your personal representative and other important relatives and letting them know who has the original. For my clients who prefer that I store their original will, I keep it in a fireproof will vault in my office, or in the vault in my bank.

 

As an alternative, you could store the will in a fireproof box or vault in your own home.

 

Wherever you store it, be sure to let your personal representative and other close relatives know where you have put it!

Probate is when the court oversees your assets and liabilities after your death. During probate, the court makes sure that your will is valid and acceptable; that all debts, bills, creditor’s claims, and taxes are paid from your estate’s assets; and that your remaining assets are distributed to your beneficiaries according to your will (or, if no will exists, by Florida law).

 

Probate usually does take longer than most beneficiaries would like. But in order to ensure that everyone with a right to a claim is included in the process, the court requires several steps. If the size and complexity of your estate are minimal, however, the entire process of probate can take as little as a few months. Larger estates that are subject to IRS estate taxes or those involving litigation on the part of creditors or heirs generally take longer, often one or more years.

 

To speed the process along for simple and small estates, the courts allow a shortened form of probate, known as “summary administration,” which requires much less paperwork and time.

A personal representative (PR) is a friend or relative, or an attorney or bank, who is put in charge of the estate until all matters regarding the probate are resolved. (In other states, this person is sometimes called an executor or administrator.) The job of the PR includes identifying all assets, searching for creditors and paying valid claims, filing required estate tax returns if the estate is large enough (the figure escalates over time, according to Congressional laws), coordinating with the probate court and attorneys, and overseeing the distribution of assets–all done under the guidance and assistance of a qualified attorney.

 

Serving as a PR is an important role, and such a person should be selected with care as to who is most willing and best able to serve in this position. By Florida law, your personal representative must be over 18 years of age, and be a blood relative, your spouse, the parent or child of your spouse, or a Florida resident.

Generally, no. If you co-own all property via such legal structures as “tenancy by the entirety” or by “joint tenancy with right of survivorship” the property immediately passed to you upon your spouse’s death. Proof of death is usually all that is needed to pass such jointly owned title for cars, stocks, and other personal property to the surviving spouse.

 

But if even one asset was held solely in the deceased person’s name, or any property is owned in the form of a “tenancy in common,” that estate will be required to go through probate. If the assets are limited, the shorter, simpler form of probate is generally all that is required.
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