An inheritance is the property you receive from someone upon their death.
Definition of Inheritance
Inheritance refers to any assets left by a person to another person after their death. It can include assets such as cash, investment accounts, retirement accounts, real estate, life insurance policies, jewelry, cars, and other valuable items.
How Does Inheritance Work?
The way inheritance works depends on how the specified assets are transferred. This can occur in several ways, including outside of probate proceedings, through a living trust, for example, or through probate proceedings. If there is a will (and no living trust), it is submitted for probate to begin the distribution process.
The probate court starts this process by validating the decedent’s last will and appointing an executor. The executor pays any debts or taxes owed by the deceased before distributing the remaining assets to the original beneficiaries.
If a person dies without a valid will, or “dies intestate,” their assets are still subject to probate. Their assets are divided according to the state’s “intestacy laws” rather than the decedent’s wishes. In most cases, the assets go to the closest relatives.
What You Should Know About Inheritance Tax
If you receive an inheritance, you should be aware of the tax laws that will apply to it. You may have to pay various taxes on the inheritance, such as state-level inheritance tax.
Six states in the United States have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Surviving spouses are usually exempt from inheritance taxes. In some states, children may also be exempt or face a lower tax rate. After that, the amount of inheritance tax you pay depends on your relationship to the deceased and state laws. Generally, the closer your relationship to the deceased, the higher the tax rate you will pay.
For example, in Kentucky, you are exempt from all inheritance taxes if you are a surviving spouse, parent, child, grandchild, brother, or sister. An inheritance tax ranging from 4% to 16% (with a $1,000 exclusion) applies if you are a niece or nephew, aunt or uncle, grandchild of the third generation, or you are a son-in-law or daughter-in-law. All other individuals and organizations pay a tax of 6% to 16% (with a $500 exclusion).
How to Check if You Have Unclaimed Inheritance
You can find out if you have an unclaimed inheritance by visiting Unclaimed.org or MissingMoney.com. Both sites are recommended by the National Association of Unclaimed Property Administrators (NAUPA) and allow you to search for unclaimed assets in your state.
If you suspect you have an inheritance from someone who recently passed away, you can also contact their estate executor to check.
Source: https://www.thebalancemoney.com/what-is-an-inheritance-5208552
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