Oakland, CA | Piedmont; Financial Planning and the Emotions of an Inheritance

Hi, I’m Erik Wolfers. I’m the founder and managing member of First & Main Financial. We’ve been helping clients get good outcomes with their personal finances since 2001. We operate as fiduciaries, where our only objective is to do what’s best for our clients and help them get the best outcome depending on their circumstances and the preferences.

Today, I want to talk a little bit about inheritance. Periodically we have people come to us who have inherited money and it’s an interesting human dilemma—people sometimes have different emotions, different feelings about getting money from someone who they love, and there always seems to be a kind of natural confusion about the taxability.

If you inherit something that was a taxable asset, something sitting in a living trust possibly or a piece of real estate, you get a step-up in basis. Whatever the cost of the asset was to the person who originally acquired it, when they pass it to you, the cost is now the current cost. It can be sold without any taxable gain or any tax consequences to person inheriting the money. Life insurance is also tax free.

We get a lot of clients who inherit retirement accounts and there’s confusion about what to do with those kinds of accounts. Mostly clients open up what’s called an inherited IRA or beneficiary IRA and the assets go into that account. They can take all the money out if they like, and the withdrawal will be fully taxable as income on their taxes.

The rules have recently changed with IRAs. It used to be you could spread the distributions out over your lifetime if you wanted to take it out slowly as possible. Now it has to be taken out within 10 years. But you don’t have to take any out until the 10th year, thus allowing the money to grow and also avoiding any tax consequence of pulling the money out on an annual basis.

We’ve been through it a lot with our clients. We understand that it can be a confusing time and a stressful time with respect to making decisions, or how to feel about the money for those who have inherited it. But it can be made very simple if you’re getting help from someone who has your best interest at heart. It can be a painless process and hopefully a lot of good can come from it.

If you are looking for some financial guidance; whether for a one time financial plan or continuing advice on your investments, we invite you to meet with a First & Main Financial planner for a free consultation. We would be more than happy to sit down with you, assess your situation and review our services to help navigate your financial future.