The Inheritance You Can See Coming

Most people are blindsided by an inheritance. A lucky few can see it coming, and that window before it arrives is where nearly all the planning value lives. Part two of Both Ends of the Table.

Read the full article: https://news.americanretirementadvisors.com/how-to-prepare-for-an-inheritance/

American Retirement Advisors helps families in Arizona and Nevada navigate healthcare, retirement income, and inheritance planning. Want to reach out? Text us at (602) 281-3898, email support@americanretire.com, or visit https://americanretirementadvisors.com.

Transcript

SPEAKER_06 0:01

Welcome to the American Retirement Advisor, coming to you from One to Three Z Studios. Real stories, real strategies, and straight talk about healthcare, retirement income, and inheritance planning. I'm Ian Schaefer, joined with Eddie and Betty. Let's get into it.

SPEAKER_04 0:16

Eddie, I've been thinking about Ian Schaefer's latest piece, and it's hitting something I see so often in the families we know. You have these wonderful people who are doing well, building their own nest egg, and then somewhere in the back of their mind, they know an inheritance is probably coming from mom or dad, but they're treating it like two completely separate things.

SPEAKER_01 0:37

That's exactly what Ian's getting at with this whole both ends of the table idea. And what really struck me is this point about that window of time between knowing something's coming and actually receiving it. He calls it the most wasted opportunity in all of inheritance planning.

SPEAKER_04 0:54

Because most people just don't use it at all, right? They wait until they're in the middle of grief, dealing with a funeral, and suddenly there's all this money and all these decisions.

SPEAKER_01 1:04

Right. And by then you've lost the chance to do the things that can only be done beforehand. Ian makes this really important point that some of the most critical decisions about an inheritance can't be made after it arrives, only before. Once certain clocks start ticking, once accounts transfer in a particular way, you can't undo that.

SPEAKER_04 1:26

So let's talk about what people should actually be doing during that window. Because I think a lot of listeners might be in this exact situation, knowing something's coming, but not really sure how to prepare.

SPEAKER_01 1:38

The first big thing is understanding what kind of assets are actually involved. And this is crucial because, as Ian points out, an inheritance isn't just one thing. Cash behaves completely differently from a retirement account, which behaves completely differently from real estate.

SPEAKER_04 1:55

Walk me through that, because I think people assume money is money.

SPEAKER_01 1:59

Well, if you're inheriting a retirement account, there's this 10-year clock that starts ticking the day the original owner passes away. For most non-spousal heirs, you have to empty that inherited IRA or 401k within 10 years. And here's the kicker: if it's a traditional account, every single dollar that comes out is taxable income to you. Every dollar? Every dollar. Now, if it's a Roth IRA, you still have that same 10-year clock, but the withdrawals are generally tax-free. That's a meaningful difference if you're inheriting both types of accounts.

SPEAKER_04 2:37

And real estate is different again?

SPEAKER_01 2:39

Completely different. A house or other appreciated property usually gets what's called a stepped-up basis. Basically, the value resets to the date of death. So if you sell it relatively soon after inheriting it, you might owe little or no capital gains tax.

SPEAKER_04 2:56

So if your parents bought their house for a $50,000 40 years ago and it's worth $500,000 when they pass, you don't pay capital gains on that $450,000 appreciation?

SPEAKER_01 3:09

Exactly. The stepped-up basis means you're treated as if you bought it for $500,000. But that 10-year clock on the retirement account, that's a completely different animal, and it requires completely different planning.

SPEAKER_04 3:23

This is why I think people get overwhelmed. There are all these different rules for different types of assets. But Ian's point is you don't need to become an expert. You just need to know which bucket things fall into so you can plan accordingly.

SPEAKER_01 3:36

Right. And here's what really resonates with me from his piece. For families who are already comfortable, who already have their own solid nest egg, this isn't just a happy windfall. It interacts with everything they've already built.

SPEAKER_04 3:50

What do you mean by interacts with everything? Well, think about it.

SPEAKER_01 3:54

If you're already doing well and suddenly a few million dollars lands on top of your existing wealth, that could push your own estate toward the federal exemption levels. Ian mentions it's currently $15 million per person and $30 million per couple for 2026 under current law.

SPEAKER_02 4:10

So suddenly you might be looking at estate tax issues you never had to think about before.

SPEAKER_01 4:16

Exactly. Or think about taxes year to year. If you inherit a large traditional IRA and you're taking required withdrawals on top of your existing income, you're stacking that onto your current tax bracket. Ian even mentions it could affect your Medicare premiums through something called the IRMA surcharge. I bet most people have never heard of that. They haven't, but it's real. The point Ian's making is that none of this is a reason to dread an inheritance, but it is absolutely a reason to plan the receiving end and your own existing plan as one connected picture.

SPEAKER_04 4:49

Instead of just treating it like, oh, good, some extra money showed up.

SPEAKER_01 4:53

Right. He says it perfectly. Layer it onto your plan, don't just bolt it on. And this is where that window of time becomes so valuable because you can think through how all the pieces fit together before you're forced to make quick decisions.

SPEAKER_04 5:06

Now Ian also talks about something that I think catches a lot of families off guard. What if you're not just inheriting, but you're also the one who's been asked to be the executor or trustee?

SPEAKER_01 5:17

Oh, this is huge. He points out that if a parent has asked you to be the executor or trustee, you're not just a future beneficiary anymore. You're about to have a job, and that job actually starts before the person passes away.

SPEAKER_04 5:32

What should someone be doing if they're in that position?

SPEAKER_01 5:35

Ian says it's actually pretty simple. Know where the documents live, know who the parent's attorney and advisor are, and understand the broad strokes of the plan while you can still ask questions. He makes this great point that executors who walk in cold after the fact spend months reconstructing what one conversation could have answered.

SPEAKER_04 5:55

That's so true. I've seen families where the adult child is scrambling around trying to figure out where dad banked, who his lawyer was, whether there's a safe deposit box somewhere, all while they're grieving.

SPEAKER_01 6:08

And some of that detective work could have been a simple conversation over coffee. Mom, if something happens to you, where do I find your important papers? Who should I call first?

SPEAKER_04 6:17

Which brings us to what might be the hardest part of all of this, actually having the conversation in the first place, because you can't prepare for what you refuse to discuss.

SPEAKER_01 6:28

Ian really emphasizes this. You don't need a parent to hand over a detailed balance sheet, but you need enough of a conversation to know the shape of what's coming and where to look.

SPEAKER_04 6:38

How do you even start that conversation, though? I think people are afraid it's going to sound like they're counting the money or waiting for someone to die.

SPEAKER_01 6:46

Ian addresses this directly. He says it needs to be approached with care, from a place of wanting to honor their wishes rather than count the money. And when it comes from that place, most parents are actually relieved to have the conversation.

SPEAKER_04 7:01

Because they want to know their wishes will be carried out correctly.

SPEAKER_01 7:04

Exactly. And they probably have some concerns of their own about whether their children will be prepared to handle things when the time comes.

SPEAKER_04 7:12

You know what I find interesting about Ian's approach here? He keeps coming back to this idea that if you're in the situation, you're sitting at both ends of the table at once. You've got a legacy arriving from your parents, but you've also got your own children who are watching and learning and will eventually be on the receiving end from you.

SPEAKER_00 7:31

And he says the families who handle this best don't separate those two things. What you receive, how it gets taxed, what you decide to keep, what you eventually pass on to the next generation, that's all one continuous story.

SPEAKER_04 7:45

So instead of thinking, I'll deal with this inheritance now and worry about my own estate planning later, you're thinking about how it all fits together.

SPEAKER_01 7:54

Right. And this goes back to the tax planning we were talking about earlier. If inheriting a large IRA is going to push you into higher tax brackets for the next 10 years while you're taking those required distributions, maybe that changes how you think about your own retirement withdrawals, or your own Roth conversions, or the timing of other financial decisions.

SPEAKER_04 8:16

It's all connected.

SPEAKER_01 8:17

It's all connected. And this is where I think people really benefit from professional guidance, because there are some technical questions that come up where the exact rules matter a lot. Like I'd write down a question about the specific timing rules for different types of inherited accounts, and make sure to ask our team at American Retirement Advisors, because getting those details wrong can be expensive.

SPEAKER_04 8:41

Let me ask you about something that I bet comes up a lot. Is the money you inherit actually taxable to you? Because I think there's confusion about that.

SPEAKER_01 8:50

Ian addresses this directly. In most cases, simply inheriting cash or property is not taxable income to you on your federal return. The main exceptions are withdrawals from an inherited traditional retirement account, which are taxable, and any growth on assets after you inherit them.

SPEAKER_03 9:08

So if you inherit $100,000 in cash, you don't pay income tax on that $100,000.

SPEAKER_01 9:15

Generally not, but if you inherit a traditional IRA worth $100,000 and you withdraw it, that withdrawal is taxable income to you. And Ian mentions that a few states have their own inheritance taxes, so it's worth checking your specific state.

SPEAKER_05 9:31

The retirement account thing is really important to understand ahead of time, isn't it? Because that 10-year clock starts ticking immediately.

SPEAKER_01 9:39

Yes, and Ian points out that the 10-year window for most non-spouse beneficiaries begins at the original owner's death, not when the account gets transferred to you, not when you first find out about it, the day the person passes away, which is one more reason why it helps to know that a retirement account is part of your inheritance before it arrives, rather than finding out afterward.

SPEAKER_04 10:02

Because you can start thinking about the tax planning immediately.

SPEAKER_01 10:05

Exactly. Maybe you want to take larger distributions in years when your other income is lower, or smaller distributions in years when you're already in a higher bracket. But you can only make those strategic decisions if you're thinking about it as a 10-year plan, not just reacting each year.

SPEAKER_04 10:22

This is making me think about all the people I know who are probably in this exact situation right now. They've got aging parents, they have a sense that there will be some inheritance, but they're just not doing anything to prepare for it.

SPEAKER_01 10:35

And Ian's point is that time is the one thing you can't buy back afterward. An inheritance you can see coming is actually a gift of time, but only if you use it.

SPEAKER_04 10:45

What would you say to someone who's listening right now and thinking, okay, I know I should probably do something, but this feels complicated and I don't even know where to start.

SPEAKER_01 10:55

Start with the conversation. You don't need to become an expert on tax law or estate planning overnight. You need to have a caring conversation with your parent about the broad strokes, what kinds of assets are involved, who are their advisors, where are the important documents. That's information you can gather, and it gives you something concrete to work with.

SPEAKER_04 11:16

And then take that information to someone who can help you see the bigger picture.

SPEAKER_01 11:20

Right. Ian mentions that when you're ready, the calmest path is to sit down with someone who can look at both ends of the table at once. What's coming, how it fits with your existing plan, and what it means for your own next generation. That's exactly what our team does in an inheritance planning meeting.

SPEAKER_04 11:38

Because this isn't just about receiving money, it's about making sure that money gets integrated thoughtfully into the bigger picture of your family's financial life.

SPEAKER_01 11:46

And making sure you don't waste that precious window of time. The families who handle inheritances well aren't the ones who just reacted gracefully when the time came. They're the ones who prepared quietly in advance.

SPEAKER_04 11:59

You know, Eddie, there's something really beautiful about the way Ian frames all of this. This idea that when you're fortunate enough to see an inheritance coming, you get to be the bridge between generations, honoring what your parents build and making sure it serves your children well too.

SPEAKER_01 12:14

That's the heart of this whole series on both ends of the table. What you receive, what you keep, what you pass on, it's all one story. And the families who treat it that way, who plan it as one connected picture, those are the families where wealth really serves its purpose across generations.

SPEAKER_04 12:32

If you're in this situation, if you know an inheritance is somewhere on the horizon, and you want to use this window of time well, don't let it slip by. Have the conversation with your parents. Start thinking about how the pieces fit together. And when you're ready to sit down with someone who can help you see the whole picture, you can reach our team at American Retirement Advisors at 602-281-3898. Because this kind of planning, when it's done thoughtfully and in advance, it really can make all the difference for your whole family.

SPEAKER_01 13:06

A quick note before we wrap up. Today's episode covers financial topics for educational purposes only. American Retirement Advisors does not provide tax or legal advice. Please consult a CPA or tax professional before making any decisions based on what you heard today.

SPEAKER_04 13:24

This is Betty with the American Retirement Advisor. Thanks for listening. If this episode helped you think differently about your retirement, share it with someone who needs to hear it. You can read the full article and browse hundreds more at AmericanRetire.com. Wanna reach out? You can text us at 602-281-3898. Or email support at AmericanRetire.com. Be sure to subscribe so you never miss an episode. We publish daily. See you next time.

SPEAKER_06 13:58

Thanks, Eddie. Thanks, Betty. Until next time, this is Ian Schaefer coming to you from 123 Easy Studios. I hope you've enjoyed this recording of the American Retirement Advisor, where we make healthcare, income, and inheritance planning 2 3 Easy.