After the Funeral: All You Need to Know about Inheritance, Property, and Taxes
The number of decision-making processes after a funeral may surprise you. There’s paperwork to locate, accounts to settle, and resolutions to finalize. Planning a funeral is an intense process in itself, so it’s important to stay organized when dealing with post-funeral matters to avoid feeling overwhelmed.
Here’s a useful summary on what you need to know about inheritance, property, and tax issues after the funeral.
Post-Funeral Paperwork: Wills and Trusts
The most important documents to identify quickly are the deceased’s last will and testament and/or estate plan. Locating the will should occur before the funeral (if possible), but the process can take some time, especially if you’re not sure the deceased person had a will.
If minor children are left behind, a will identifies a legal guardian. If a guardian is not named in the will, the decision of custody is left up to the courts. A will also lists beneficiaries, appoints a legal executor, and provides instructions on property and asset distribution.
Estate planning documents – such as a revocable living trust or financial power of attorney – are crucial sources of information regarding the decedent’s final wishes about personal and/or business estate. For people with sizeable estates or complicated family hierarchies, trusts are usually better options than wills.
How to Find the Deceased’s Will
To discover if your loved one wrote a will, start by searching through their personal papers and files at home and at work. If you don’t find anything there, look for a safe deposit box and request access. Family members or close friends might be helpful, along with the deceased’s lawyer (if applicable). As a last option, you can check local probate court records to see if a will was filed while the deceased was alive.
If the deceased had a large estate, they likely made arrangements with an estate planning advisor and named an executor. The executor is responsible for managing the estate according to the instructions of the deceased and will have access to the necessary documents after the funeral.
After the Funeral: Inheritance
An inheritance is defined as possessions or property gained from someone’s death. Immediate family members often inherit their loved one’s legacy, but people with no relation to the decedent may also be named as beneficiaries. Beneficiaries find out about their inheritance from the estate executor, though the actual distribution is not instant. Although it sounds simple, the actual process of receiving an inheritance can be long and complex.
If the deceased named beneficiaries in his/her will, the will must first go through probate. Probate is the legal process where courts determine how the decedent’s assets and property are distributed (according to the will’s instructions). Probate can take a long time, so beneficiaries shouldn’t expect to receive their inheritance immediately after the funeral. In cases where the will is contested, it can take years before an outcome is reached.
Beneficiaries should be aware that inheritance taxes may be due on any money or property received. Inheritance tax is a state tax that is paid by the person who inherits a legacy, but only six states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania) currently impose inheritance taxes. The tax rate depends on the total value of the assets, however, depending on their relationship to the deceased, certain people may be exempt from paying inheritance tax.
After the Funeral: Property Arrangements
The executor named by the will is responsible for carrying out all the deceased’s final wishes, including property transfers and distributions. Estate executors play a significant role in managing estate affairs and finalizing the decedent’s real and personal property arrangements.
- Property valuation – The executor calculates the gross value of all the assets and property in the deceased’s estate. This includes all bank, investment, and retirement accounts, as well as real estate properties, business interests, and personal effects.
- Property transfers – After a death, property transfers depend on probate, trust terms, title ownership, and community property laws. To avoid premium lapses, insurance companies should be notified of any changes in ownership.
- Estate debts – Outstanding debts left by the deceased will be paid out of the estate assets. The executor may need to sell property to cover all the financial obligations, which may lower the final distribution to beneficiaries.
In addition to physical assets and property, the deceased likely owned various digital assets such as email addresses, social media profiles, and internet accounts. The family should create a plan about how to manage their loved one’s digital legacy.
After the Funeral: Taxes
As the saying goes, nothing is certain except death and taxes. A final individual income tax return must still be filed after someone dies. According to the IRS, the tax return should be prepared in the same manner as when the person was alive, and all income up to the date of death must be reported. The decedent can claim all credits and deductions to which they are entitled, and the person filing the tax return on behalf of the deceased may also claim a refund if one is available.
Surviving spouses are also eligible for specific tax breaks, including filing under the “married filing jointly” category for two years after the death of their spouse. Qualifying widows and widowers also receive special tax considerations on jointly-owned investments.
After the funeral, an estate income tax return may be required. The IRS considers the decedent and their estate to be separate taxable entities, and if the deceased’s estate generates more than $600 in annual gross income, an estate income tax return needs to be filed.
An estate income tax return differs from a federal estate tax return. The majority of estates don’t owe estate taxes after someone dies because the current federal estate tax exemption is $5.49 million. Due to this threshold, very few estates end up filing a federal estate tax return.
If You Need Assistance, Ask for It
After a funeral, there’s often a lot of work when it comes to finalizing taxes, property transfers, and inheritance distributions. It helps if your loved one made advance plans to get their personal affairs in order and document their final wishes. Those who leave behind a will or trust often choose an executor to carry out their instructions, easing the burden for those left behind.
If handling paperwork and estate planning decisions is too difficult, ask someone you trust or work with a lawyer to help you finalize things. It’s important to avoid unnecessary stress in a time of grief, but try to get as much done after the funeral to limit problems later on.
For information on how to manage your loved one’s belongings after the funeral, learn more on Funeralocity.com.
What do I do if my loved one didn’t have a will?
Without a will in place, families can spend $12,000 or more for an attorney to settle their loved one’s estate. Funeralocity recommends saving thousands of dollars by using online resources such as Trust & Will to help you through each step. Trust & Will’s county-specific probate guidance makes it easy to gather the right documents and take the necessary next steps to settle the estate even though there was no will. We like that it offers three packages to choose from, ranging between $600 to $5,000 depending on the level of support you’d like.Back to Knowledge Center