How Does a Will Beneficiary Receive Their Inheritance?

If you’ve seen movies involving characters who are beneficiaries of a will, they often immediately receive their inheritance to keep the storyline moving. Movies usually skip the court system and quickly provide the characters with the assets.

Of course, people who receive an inheritance in real life might wait months or years to obtain the assets left to them. Understanding how the beneficiary of a will receives an inheritance can help create realistic expectations if you find yourself in this situation.

What Is an Inheritance?

An inheritance consists of assets you receive from someone when they pass away. Examples include:

• Cash

• Investments such as stocks, bonds, annuities, and Individual Retirement Accounts (IRAs)

• Property, including land and real estate

• Items such as jewelry, collectibles, furniture, cars, and family heirlooms

What Must Happen Before You Receive an Inheritance?

An inheritance must go through a legal process before you receive it:

• The executor submits the will and other documents to the probate court.

• Any outstanding bills or taxes must be paid before the beneficiary or beneficiaries receive their inheritance.

• This process can take months or years.

Which Steps Must an Executor Follow to Distribute the Assets?

The executor of a will is the person or institution named in a will to carry out the deceased's final wishes. Their duties include managing and distributing their estate according to the will's instructions. 

An executor takes the following steps to distribute the assets in a will:

1.  Asset inventory

The executor obtains the will, any outstanding bills, and estate planning documents, such as bank statements, house deeds, car titles, and insurance policies. Depending on the state, they might be required to present this information to a probate court.

2.  Asset valuation

The executor calculates the value of the assets:

• The courts require a listing of the assets included in the inheritance, and their date-of-death value.

• If you decide to sell any of your inherited assets, you will be assessed a capital gains tax. 

• The date-of-death valuation creates a step-up in basis, meaning you would be taxed on the gains you made from the date-of-death value, not from the prices at the time the assets were originally acquired.

3.  Bill payments 

The executor must pay any outstanding bills before the beneficiary or beneficiaries receive an inheritance. Common bills include:

• Utilities

• Medical expenses

• Credit card payments

• Personal loans

• Mortgages

The executor must notify creditors of the death. They might place a notice in a newspaper along with instructions on how to report a claim within a set timeframe. Any disputed claims might go before a judge, which can complicate matters and extend the timeline.

4.  Tax returns and payments

The executor files any required federal and state estate taxes, inheritance taxes, and final income taxes on the deceased person’s behalf and pays any taxes due.

5.  Asset distribution

The executor distributes the assets to the beneficiary or beneficiaries based on the instructions in the will. This process can take weeks to months.

What Are Inheritance Taxes?

Many states assess inheritance taxes. Beneficiaries must pay taxes when they receive an inheritance. The amount depends on the following:

• State laws

• Size of the inheritance

• Types of assets inherited

• Relationship to the deceased

What Should You Do When You Receive an Inheritance?

Many beneficiaries make irrational decisions and lifestyle changes after receiving an inheritance. Although what you do with the assets is up to you, the following suggestions can be helpful:

• Consider working with a licensed financial professional: A licensed financial professional can create a financial plan based on your goals. You might want to pay off debts and invest your assets to grow your wealth.

• Focus on not spending your entire inheritance: Receiving an inheritance while grieving the loss of a loved one can be emotional, and you might not be thinking clearly. Consider saving your assets and scheduling a later time to decide what to do with them when you can be more logical.

• Prioritize your financial goals: You might want to pay off debts, save for retirement, or invest more for a child’s post-secondary education.

*This information is for educational purposes only.