Aaron Charles Gregg

What Happens when You Inherit a Retirement Account?

“There’s almost always a reckoning when the government proffers a tax break. So it is with individual retirement accounts (IRA)s, 401(k)s and similar accounts that investors fund with pre-tax earnings.”

The SECURE Act of 2019 reset the game for IRAs and other tax deferred retirement accounts, says a recent article from Financial Advisor titled “IRAs, Taxes and Inheritance: Planning Becomes a Family Affair.” Prior to SECURE, investors paid ordinary income tax rates on withdrawals, whether they were voluntary or Required Minimum Distributions (RMDs) from these accounts, except for Roths. When individuals stopped working and their income dropped, so did the tax rate on their withdrawals. All was well.

Then the SECURE Act came along, with good intentions. The time period for payouts of IRAs and similar accounts after the death of the account owner changed. Non-spouse beneficiaries now have only 10 years to empty out the accounts, setting themselves up for potentially huge tax bills, possibly when their own incomes are at peak levels. What can be done?

Heirs of individual investors or couples with hefty IRAs and investment accounts are most likely to face consequences of the new tax regulations for RMDs and inheritances from the SECURE Act.

A widowed spouse faces the lower of either their own or the partner’s RMD rate—it’s tied to birth years. However, there is a pitfall: the widowed spouse files a single tax return, which cuts available deductions in half and changes tax brackets. Single or married, consider accelerating IRA withdrawals as soon as taxable income lowers early in retirement. Taking withdrawals from IRAs at this time voluntarily often means the ability to defer and as a result, optimize Social Security benefits to age 70.

For non-spousal beneficiaries of inherited IRAs, there’s no way around that 10-year rule. Their tax rates will depend on income, whether they file single or joint and any deductions available. If a beneficiary dies while the account still owns the assets, those assets may be subject to estate taxes, which are high.

Here’s where tax planning is could help. IRA owners may try to “equalize” inheritances among heirs with tax consequences in mind. For instance, a lower earning child could be the IRA beneficiary, while a higher earning child could receive assets from a brokerage account or Roth IRAs. Alternatively, an IRA owner could establish trusts or make charitable bequests to empty the IRAs before they become part of the estate.

Your estate planning attorney will help you create a road map for distributing IRA and other tax deferred assets based on the tax and timing for beneficiaries or what you want to fund after you pass.

Another strategy, if you don’t expect to exhaust your IRA assets in your lifetime, is to systematically withdraw money early in retirement to fund Roth IRAs, known as a Roth conversion. The advantage is simple: inherited Roth IRAs need to be drawn down in ten years, but the money isn’t taxable to beneficiaries.

Decumulation planning is complicated to do. However, your estate planning attorney will help evaluate your unique situation and create the optimal income sourcing plan for your family based on their assets, including taxable and tax-advantaged accounts, Social Security benefits, pensions, life insurance and annuities.

Reference: Financial Advisor (Sep. 29, 2022) “IRAs, Taxes and Inheritance: Planning Becomes a Family Affair”

Is It Better to Inherit Stock or Cash?

“If you’re planning to leave your heirs any sort of inheritance, you’re already giving them a valuable financial leg up.”

To make an inheritance even more advantageous for heirs, it’s a good idea to streamline accounts and simplify what you own before you die, eliminating some complications during a very emotional time. The next three decades will see a massive transfer of wealth from one generation to the next, says a recent article “6 of the Best Assets to Inherit” from Kiplinger. If you might be among those leaving inheritances to loved ones, there are steps you can take to prevent emotional and even family-destroying fights resulting from problematic assets.

Cash is king of inheritance assets. It’s simplest to deal with and the value is crystal clear. If you have accounts in multiple financial institutions, consolidate cash into one account. Each bank may have different rules for distributing assets, so reducing the number of banks involved will make it easier. Just remember to stay within FDIC limits, which insures only $250,000 per bank per ownership category. Tell your children if they are going to receive a significant cash inheritance and discuss what they may want to do with it.

Cash substitutes. Proceeds from a life insurance policy are usually very cut and dried. When you pass away, the life insurance company pays beneficiaries the death benefit in cash, according to the beneficiaries named on the policy. Be sure to tell your heirs where the original policy is located. They’ll need to provide the insurance company with a death certificate and there may be a form or two involved. The proceeds are income tax free, although the death benefit itself is added to the value of your estate and might be charged estate taxes.

Bank products, like CDs and Money Market Accounts. You can set up these accounts to be Payable on Death (POD), so the person named can access the assets quickly after your death. Don’t put one person’s name on the account and hope they share with their siblings. That’s a recipe for family disaster. If your will has one set of instructions and the bank product names another owner, the bank will pay according to the titling of the account. The same goes for life insurance proceeds—the beneficiary designation supersedes instructions in a will.

Brokerage Accounts. Stocks, bonds, mutual funds and other assets held in a taxable brokerage account are easy to divide and value. They are also easy to sell and convert to cash. What’s more, they could give heirs a significant tax benefit. If you bought shares of Apple or IBM years ago and sold the stocks while you were living, you’d owe capital gains taxes. However, if the investments are inherited, the heir receives a step-up-in-basis, which means the investment basis goes to the market value on the day you die. It’s entirely possible for heirs to sell appreciated assets with no or little taxes due.

Assets that decrease in value fast: this is not for everyone. Let’s say you know your heir is going to take their inheritance and buy an over-the-top luxury item, like a new sports car or a yacht. You know the asset will lose value the minute it’s driven out of the showroom or launched for the first time. Rather than leave them cash to make a purchase, buy the car or boat yourself and leave it to them as an inherited asset. They lose value immediately, while reducing your taxable estate. You’ve always wanted a Lamborghini anyway.

Roth IRA—Best of All IRA Worlds. The Roth IRA is funded with after-tax dollars, and in exchange, retirement withdrawals and investment gains are income tax-free. If you leave a 401(k) or traditional IRA, heirs will owe taxes on withdrawals and unless they meet certain requirements, they have to empty the account within ten years.

Trust Fund Assets. This may be the best way to protect an inheritance from heirs. If you leave property outright to heirs, it’s subject to creditors and predators. Funds in a trust are carefully protected, according to the terms of the trust, which you determine. Your estate planning attorney can create the trust to achieve whatever you want. Inheritances in trusts are less likely to evaporate quickly and you get the final say in how assets are distributed.

Reference: Kiplinger (Dec. 9, 2021) “6 of the Best Assets to Inherit”

How Do You Split an Estate in a Blended Family?

“Good estate planning must consider more than what you want to happen to your property and for your beneficiaries. It also must consider what you intentionally want to avoid happening.”

Estate planning attorneys know just how often blended families with the best of intentions find themselves embroiled in disputes, when the couple fails to address what will happen after the first spouse dies. According to the article “In blended families, estate planning can have unintended issues” from The News-Enterprise, this is more likely to occur when spouses marry after their separate children are already adults, don’t live in the parent’s home and have their own lives and families.

In this case, the spouse is seen as the parent’s spouse, rather than the child’s parent. There may be love and respect. However, it’s a different relationship from long-term blended families where the stepparent was actively engaged with all of the children’s upbringing and parents consider all of the children as their own.

For the long-term blended family, the planning must be intentional. However, there may be less concern about the surviving spouse changing beneficiaries and depriving the other spouse’s children of their inheritance. The estate planning attorney must still address this as a possibility.

When relationships between spouses and stepchildren are not as close, or are rocky, estate planning must proceed as if the relationship between stepparents and stepsiblings will evaporate on the death of the natural parent. If one spouse’s intention is to leave all of their wealth to the surviving spouse, the plan must anticipate trouble, even litigation.

In some families, there is no intent to deprive anyone of an inheritance. However, failing to plan appropriately—having a will, setting up trusts, etc.—is not done and the estate plan disinherits children.

It’s important for the will, trusts and any other estate planning documents to define the term “children” and in some cases, use the specific names of the children. This is especially important when there are other family members with the same or similar names.

As long as the parents are well and healthy, estate plans can be amended. If one of the parents becomes incapacitated, changes cannot be legally made to their wills. If one spouse dies and the survivor remarries and names a new spouse as their beneficiary, it’s possible for all of the children to lose their inheritances.

Most people don’t intend to disinherit their own children or their stepchildren. However, this occurs often when the spouses neglect to revise their estate plan when they marry again, or if there is no estate plan at all. An estate planning attorney has seen many different versions of this and can create a plan to achieve your wishes and protect your children.

A final note: be realistic about what may occur when you pass. While your spouse may fully intend to maintain relationships with your children, lives and relationships change. With an intentional estate plan, parents can take comfort in knowing their property will be passed to the next generation—or two—as they wish.

Reference: The News-Enterprise (Dec. 7, 2021) “In blended families, estate planning can have unintended issues”

What Happens If I Take a Bigger RMD?

“Sometimes only taking the minimum IRA distribution can be a costly mistake. When deciding how much to withdraw this year, you need to consider the big picture. For some people, it makes sense to go big.”

Once you celebrate your 72^nd birthday, the IRS requires you to take a minimum amount from IRAs or other tax-deferred retirement accounts. Most people take the minimum, says a recent article from Kiplinger titled “Should You Take an Extra Big RMD This Year?” However, taking the minimum is not always the right strategy.

Looking at the broader picture might lead you to go bigger with your RMDs. For example, Bill and Betty are ages 75 and 71. Bill has an IRA worth $850,000. Their retirement income consists of a pension totalling $34,000, dividends of $8,000 and combined Social Security benefits of $77,000. Bob’s 2021 IRA RMD is $37,118. Using the standard deduction of $28,100 (for a married couple where both are over age 65 plus a $300 charitable contribution deduction), their taxable income is $116,468. Federal taxes are $16,560.

Bill and Betty could recognize another $65,000 of ordinary income from his IRA before they land in the 24% tax bracket. In 2022, Betty will have to start taking RMDs on her IRA—did we mention that her IRA is worth $1.5 million?—which will bump them into the 24% tax bracket. Bill should take another $64,000 from his IRA, filing up the 22% ordinary income bracket and reducing his RMD for 2022.

Another example: Alan Smithers is 81 and remarried ten years after his first wife passed. His IRA is worth $1.3 million, and his daughter is the beneficiary. His IRA RMD is $66,000 and he intends to be generous with charity this year, using about $30,000 for a Qualified Charitable Distribution (QCS). Based on a projection of his 2021 tax return, Alan could take another $22,000 from his IRA, taxable at 12%. His daughter Daphne is 51, has a high income and significant assets. He should consider filling up his own 12% marginal ordinary income bracket, because when Daphne starts taking her own beneficiary distributions, she’ll be facing high taxes.

Here’s what you need to consider when making RMD decisions:

Your tax bracket. How much more income can you realize while staying within your current tax bracket? Taxpayers in the 10-12% brackets should be extra careful of maxing out on ordinary income.

Your income. What does 2022 look like for your income? Will there be other sources of income, such as an inherited IRA, spouse’s IRA RMD, or annuity income to be considered?

Beneficiaries. How does your own tax rate compare with the tax rates of your beneficiaries? If you have a large IRA and your children have high incomes, could an inheritance push them into a higher tax bracket?

Medicare Premiums. Increases in income can lead to higher Medicare Part B and D premiums in coming years, so also keep that in mind.

It’s best to take the broader view when planning for RMDs and taxes. A short-sighted approach could end up being more costly for you and your heirs.

Reference: Kiplinger (Nov. 23, 2021) “Should You Take an Extra Big RMD This Year?”

Can You Refuse an Inheritance?

“What happens if you are named an heir in an estate but you don’t want it? Does it go the person’s children if you reject the inheritance?”

No one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. It may or may not go to the decedent’s children.

After a valid qualified disclaimer has been executed and submitted, you as the “disclaimor” are treated as if you died before the decedent. Whoever receives the inheritance instead depends upon what the last will or trust provides, or the intestate laws of the state where the decedent lived.

In most cases, the last will or trust has instructions in the case of an heir disclaiming. It may have been written to give the disclaimed property to the children of the disclaimor, or go to someone else or be given to a charity. It all depends on how the will or trust was prepared.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimer is considered invalid. The disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

If you execute a non-qualified disclaimer relating to a $100,000 inheritance and it ends up going to your offspring, you may have inadvertently given them a gift according to the IRS. You’ll then need to know who needs to report the gift and what, if any, taxes are due on the gift.

Persons with Special Needs who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.

A Special Needs Trust might be able to receive an inheritance, but there are limitations regarding how much can be accepted. An estate planning attorney will need to be consulted to ensure that the person with Special Needs will not have their benefits jeopardized by an inheritance.

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

States with the Best Tax Rates for Retirees

“The Tax Cuts and Jobs Act raised the federal estate tax exemption considerably. Before the tax reform law, it was $5.49 million per person for 2017. It's up to $11.7 million for 2021 ($23.4 million for a married couple).”

For the moment, fewer Americans are concerned about the federal estate tax. However, if your goal is to leave as much as possible to heirs, then it’s wise to consider all the taxes of the state you choose for retirement. That’s all detailed in the article “33 States with No Estate Taxes or Inheritance Taxes” from Kiplinger.

Twelve states and the District of Columbia have their own estate taxes, which some call “death taxes.” Their exemption levels are far lower than the federal government’s. There are also six states with inheritance taxes, where heirs pay taxes based on their relationship to the deceased. Maryland has both: an estate tax and an inheritance tax.

The most tax friendly states of all are Nevada, Arizona, Wyoming, Colorado, Arkansas, Tennessee, South Carolina and Delaware. In Colorado, taxpayers 55 and older get a retirement income exclusion from state taxes that gets better when they reach 65. Colorado also has one of the lowest median tax rates and seniors may qualify for an exemption of up to 50% of the first $200,00 of property value. Colorado also has a flat income tax rate of 4.55%, and up to $24,000 of Social Security benefits, along with other retirement income, can be excluded for income tax purposes.

Next in line for retiree tax friendliness are Montana, Idaho, California, Kentucky, Virginia, Louisiana, Mississippi, Alabama, Georgia and Florida. Let’s look at the Sunshine State, which has no state income tax and also a low sales tax rate. Property taxes are low in Florida, and residents 65 and older who meet certain income, property-value and length-of-ownership standards also receive a homestead exemption of up to $50,000 from some city and county governments and meet other requirements. Social Security benefits are not taxed in Florida and the state has no income tax, making it extremely attractive to retirees.

Coming in third place with a mixed tax picture are Washington, Oregon, North Dakota, South Dakota, Utah, Oklahoma, Missouri, West Virginia, North Carolina, Maryland and the District of Columbia.  Many people are moving to North Carolina, where Social Security benefits are not taxed, but tax breaks for other kinds of retirement income are far and few between. Property taxes are low and there are no estate or inheritance taxes. State income is taxed at a flat 5.25% percent, making North Carolina competitive, when compared to high state income taxes. Then there’s Oklahoma, which doesn’t tax Social Security benefits and allows residents to exclude up to $10,000 per person ($20,000 for couples) in retirement income. However, the Sooner State has one of the highest combined state and local sales tax rates in the nation. Property taxes also fall right in the middle, when the median property taxes for all 50 states are compared.

Looking for a state to avoid when it comes to taxes? The fourth place in taxes goes to New Mexico, Minnesota, Michigan, Indiana, Ohio, Pennsylvania, Maine, New Hampshire and Massachusetts. Indiana may not tax Social Security benefits, but it taxes IRAs, 401(k) plans and private pension income. And counties are authorized to levy their own income taxes on top of the state’s flat tax. Sales and property taxes are in the middle of the road. Illinois also spares retirees from taxes on Social Security and income from most retirement plans, but property taxes in are the second highest in the nation. Sales tax rates are high in Illinois. The state also levies an estate tax on heirs. Pennsylvania has an inheritance tax and high property taxes (the 12^th highest in the country). However, it has a flat income tax rate of 3.07%, although school districts and municipalities may levy their own taxes.

Lowest on the list for retirees seeking to minimize tax expenses are New York State, Vermont, New Jersey, Connecticut, Wisconsin, Illinois, Iowa, Nebraska, Kansas and Texas. Everyone knows about taxes in New York, New Jersey, and Connecticut, but Texas? How does a state with no income tax at all end up on the “least tax friendly for retirees” list? Texas has the seventh-highest median property tax rate in the country. There are some exemptions for retirees, but not enough to make the state tax friendly. Sales taxes are high, with the average combined state and local taxes in the state hitting 8.19%.

Taxes are not the only factor in deciding where to retire. Where you ultimately retire also considers where your loved ones live, what level of healthcare you need now and may need in the future and whether you want to move or remain in your community.

Reference: Kiplinger (Aug. 25, 2021) “33 States with No Estate Taxes or Inheritance Taxes”

What are Responsibilities of Trustees and Executors?

“A trustee is a fiduciary which, essentially, is a person that owes a legal, ethical and, perhaps, moral obligation to act in the interest of another.”

Being a fiduciary requires putting the interest of the beneficiary over your own interests, no matter what. The person in charge of managing a trust, the trustee, has a fiduciary duty to the beneficiary, which is described by the terms of the trust. This is explained in a recent article titled “Estate Planning: Executors, executrix and personal representatives” from nwitimes.com.

Understanding the responsibilities of the trust requires a review of the trust documents, which can be long and complicated. An estate planning attorney will be able to review documents and explain the directions if the trust is a particularly complex one.

If the trust is a basic revocable living trust used to avoid having assets in the estate go through probate, duties are likely to be similar to those of a personal representative, also known as the executor. This is the person in charge of carrying out the directions in a last will.

A simple explanation of executor responsibilities is gathering the assets, filing tax returns, and paying creditors. The executor files for an EIN number, which functions like a Social Security number for the estate. The executor opens an estate bank account to hold assets that are not transferred directly to named beneficiaries. And the executor files the last tax returns for the decedent for the last year in which he or she was living, and an estate tax return. There’s more to it, but those are the basic tasks.

A person tasked with administering a trust for the benefit of another person must give great attention to detail. The instructions and terms of the trust must be followed to the letter, with no room for interpretation. Thinking you know what someone else wanted, despite what was written in the trust, is asking for trouble.

If there are investment duties involved, which is common when a trust contains significant assets managed in an investment portfolio, it will be best to work with a professional advisor. Investment duties may be subject to the Prudent Investor Act, or they may include the name of a specific advisor who was managing the accounts before the person died.

If there is room for any discretion whatsoever in the trust, be careful to document every decision. If the trust says you can distribute principal based on the needs of the beneficiary, document why you did or did not make the distribution. Don’t just hand over funds because the beneficiary asked for them. Make decisions based on sound reasoning and document your reasons.

Being asked to serve as a trustee reflects trust. It is also a serious responsibility, and one to be performed with great care.

Reference: nwitimes.com (July 18, 2021) “Estate Planning: Executors, executrix and personal representatives”

Do You Need a Revocable Trust or Irrevocable Trust?

“Trust funds are not just for the ultra-rich. These sophisticated estate-planning tools can make just as much sense for middle-class Americans who own a home and have a net worth of at least $100,000.”

There are important differences between revocable and irrevocable trusts. One of the biggest differences is the amount of control you have over assets, as explained in the article “What to Consider When Deciding Between a Revocable and Irrevocable Trust” from Kiplinger. A revocable trust is often referred to as the Swiss Army knife of estate planning because it has so many different uses. The irrevocable trust is also a multi-use tool, only different.

Trusts are legal entities that own assets like real estate, investment accounts, cars, life insurance and high value personal belongings, like jewelry or art. Ownership of the asset is transferred to the trust, typically by changing the title of ownership. The trust documents also contain directions regarding what should happen to the asset when you die.

There are three key parties to any trust: the grantor, the person creating and depositing assets into the trust; the beneficiary, who will receive the trust assets and income; and the trustee, who is in charge of the trust, files tax returns as needed and distributes assets according to the terms of the trust. One person can hold different roles. The grantor could set up a trust and also be a trustee and even the beneficiary while living. The executor of a will can also be a trustee or a successor trustee.

If the trust is revocable, the grantor has the option of amending or revoking the trust at any time. A different trustee or beneficiary can be named, and the terms of the trust may be changed. Assets can also be taken back from a revocable trust. Pre-tax retirement funds, like a 401(k) cannot be placed inside a trust, since the transfer would require the trust to become the owner of these accounts. The IRS would consider that to be a taxable withdrawal.

There isn’t much difference between owning the assets yourself and a revocable trust. Assets still count as part of your estate and are not sheltered from estate taxes or creditors. However, you have complete control of the assets and the trust. So why have one? The transition of ownership if something happens to you is easier. If you become incapacitated, a successor trustee can take over management of trust assets. This may be easier than relying on a Power of Attorney form and some believe it offers more legal authority, allowing family members to manage assets and pay bills.

In addition, assets in a trust don’t go through probate, so the transfer of property after you die to heirs is easier. If you own homes in multiple states, heirs will receive their inheritance faster than if the homes must go through probate in multiple states. Any property in your revocable trust is not in your will, so ownership and transfer status remain private.

An irrevocable trust is harder to change, as befits its name. To change an irrevocable trust while you are living takes a little more effort but is not impossible. Consent of all parties involved, including the beneficiary and trustee, must be obtained. The benefits from the irrevocable trust make the effort worthwhile. By giving up control, assets in the irrevocable trust may not be part of your taxable estate. While today’s federal estate exemption is historically high right now, it’s expected to go much lower in the future.

Reference: Kiplinger (July 14, 2021) “What to Consider When Deciding Between a Revocable and Irrevocable Trust”

What Should Not Be Included in Will?

“In general, a last will and testament is an easy and straightforward way to state who gets what when you die and name a guardian for your minor children.”

A last will and testament is the basic document of an estate plan, which is how you direct assets according to your wishes after you have died. However, there are certain things that do not belong in a will, and it’s important to know what they are. Mistakes can lead to expensive and worrisome complications, says the article “Things you should never put in your will” from msn.com.

Your will can get very specific about who receives what in the way of your personal possessions. For example, you can give your car to a family member of your choice. What you can’t do is tell the family member how they can use the car, or if she should never sell the car. Enforcing conditional wishes through a will isn’t legal, nor is it practical.

If you want to control aspects of an inheritance, the best way to this is through a trust, which allows you to set terms that are enforceable, even after you have died. A trust is a legal entity with a trustee and the law to enforce its terms. You can set goals or milestones for heirs best with a trust.

Leaving assets out of your will actually benefits family members in many regards. First, they’ll receive their inheritance faster. Upon death, your will must be reviewed and validated in a court of law in a process known as probate. Depending on your jurisdiction and the complexity of your estate, this can take months and, in some cases, years. Papers have to be filed, judges have to review your will and determinations must be made. Wills can also be contested in court, further tying up assets and slowing the process of distribution.

Putting property in a trust or having accounts that are Payable On Death (POD) will speed up the process for heirs.

Don’t put anything in a will that you don’t own outright. If you are a co-owner with someone, upon your death, the other owner will become the owner, with no need for court involvement.

Trusts are a key tool in estate planning, used to avoid probate and increase control of assets. Once property is titled into the trust, it becomes subject to the rules and directions of the trust, which are explained in detail in the trust documents. Nothing placed in a trust should be included in a will to avoid any confusion and delays.

Certain accounts and assets are payable or transferable on death. They are distributed directly to heirs, so putting them in a will is not necessary. These are accounts with beneficiary designations, typically brokerage or investment accounts, retirement accounts, pension plans and life insurance policies.

Business interests can be given through a will, but you don’t want to do this. Succession could be contested, and your business partners may be left with a big headache, instead of focusing on transitioning the business to the next generation of owners. Your estate planning attorney will be able to help create a succession plan that will align with your estate plan. The two need to work together.

Once deemed valid by the probate court, your last will and testament becomes a public document.  Anyone who wants to read it, can do so. Your will should not include any account numbers, account values, login information, passwords, or any information you would not want to be shared in public.

Reference: msn.com (July 11, 2021) “Things you should never put in your will”

What Happens If You Inherit a House with a Mortgage?

“If you have a mortgage, you might worry about what that means for your heirs and loved ones. Will they be able to keep your home, and who will be responsible for paying for it?”

Nothing in life is certain, except death and taxes, says the old adage. The same could be said about mortgages. Did you know that the word “mortgage” is taken from a French term meaning “death pledge?” A recent article titled “What happens to your mortgage when you die?” from bankrate.com explains the options for homeowners who wonder what might happen to their home, mortgage and loved ones, after they die.

When a homeowner dies, their mortgage lives on. The mortgage lender still needs to be repaid, or the lender could foreclose on the home when payments stop, regardless of the reason. The same is true if there are outstanding home equity loans or lines of credit attached to the property.

If there is a co-borrower or co-signer, the other person must continue making payments on the mortgage. If there is no co-signer, the executor of the estate is responsible for making mortgage payments from estate assets.

If the home is left to an heir through a will, it’s up to the heir to decide what to do with the home and the mortgage. If the lender and the terms of the mortgage allow it, the heir can assume the mortgage and make payments. The heir might also arrange for the property to be sold.

A sole heir should reach out to the mortgage company and discuss their options, after conferring with the family’s estate planning attorney. To assume the loan, the mortgage must be transferred to the heir. If the property is sold, proceeds from the sale are used to pay off the loan.

Heirs do not need to requalify for the mortgage on a loan they inherited. This can be a good opportunity for someone with bad credit to repair that credit, if they can stay current on the mortgage. If the heir wants to change the terms of the mortgage, they will need to qualify for a new loan and meet all of the lending institution’s eligibility requirements.

Proof that a person is the rightful inheritor of the property or executor of the estate may be required. The mortgage lender will typically have a process to specify what documents are needed. If the lender is not cooperative or balks at any requests, the estate planning attorney will be able to help.

If you own a home, it is very important to plan for the future and that includes making decisions about what you want to happen to your home, if you are too ill to manage your affairs or for when you die. You’ll need to document your wishes,

Reference: Bankrate.com (July 9, 2021) “What happens to your mortgage when you die?”