The last thing someone who receives an inheritance needs is more stress. But sometimes, that's exactly what they get.
While leaving a significant sum of money to a loved one can give them financial relief or a dream vacation, it can also cause problems. That's why proper planning is the key to avoid getting hit with a major tax bill.
"It's really no different than any other financial event or occurrence that people have," Phil Calanndra, co-founder and CEO of Calanndra Financial Group, said in an interview with RTTNews. "It just requires planning and a lot of people miss that.
"Having an inheritance is a wonderful thing, (but) sometimes difficult, though, after you get over the initial grief. It's always hard to make final decisions when you're in that frame of mind. So I think the best place to start is with a plan."
A lot of the tax burden can be relieved if the person leaving the inheritance has things in order. With tax codes constantly changing, Calanndra recommends reviewing your portfolio at least once a year.
"No. 1 is to have a full understanding of the type of assets that they are going to be leaving behind," he said. "For example, if it's a retirement account, IRA, 401, there are very specific things that they can set up prior to passing away that can prevent the land mine and a huge tax burden."
For example, an IRA account can be stretched so the beneficiaries receive their inheritance in pieces rather than one lump sum, which can lead to a big tax hit.
Proper planning and meeting with industry experts can help makes things as easy as possible on the loved ones you leave behind. Calanndra recommends visiting with an attorney, a CPA and a financial advisor to make sure everything is in order.
The first step, however, is making sure you know what you have and what you can do.
"The first thing is to make sure you have all your legal documents in order," he said. "Identify what assets you currently have and what assets can be moved into certain areas."
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