Stacks of coins and piggy bank

I Inherited A Trust Fund: Now What?

If you have inherited a trust fund, the first thing you need to do is consult with a tax accountant. The main reason for this is that the tax laws change frequently, and accountants and lawyers are the only professionals who are going to have the latest information.

Inheritance Taxes

How much money you will owe will depend upon how much money you have inherited and where your benefactor lived. The reason the residency of your benefactor is important is because of the state inheritance tax. There are six states with an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. If your benefactor did not live in one of these six states, you will not have to pay state inheritance tax.

At the federal level, your inheritance is subject to taxes once it reached the threshold of $5,340,000. If the value of your trust fund falls below this, you will not owe anything. The figure is for the year 2014. However, inheritance can take many forms, and if what you have inherited is real estate, the tax laws can be different, especially at the state level. Make sure you consult an accountant.

What you should do with your inheritance?

What you do with your money is dependent to a certain extent on your age. Ideally, you should not touch any of the money until you retire, but there are a couple of exceptions you might want to consider.

  • Paying off your debt

    If you have a lot of debt, paying off this debt will save a lot of money in interest. Many financial advisors will recommend that debt be paid off before investing money. Mathematically it makes a lot of sense, but if you do this, you must have the discipline to not accumulate more debt after becoming debt free. If you go back into debt, you are simply wasting your inheritance.

  • Buying a home

    If you do not have a house, using some of your inheritance to help with a down payment can be a good investment. This may be a good choice if you are struggling to get the money for a down payment. The important thing to remember is not to buy a home that is beyond what you can afford. Only use your inheritance to help with a down payment.

  • Paying for your education

    If haven't gotten a college degree, it may make sense to use some of your inheritance to pay for your college education. This is especially true if didn't go because you thought you couldn't afford to go to college. Using some of your inheritance to pay for college is better for you financially than borrowing the money via a student loan.

If you have inherited a trust fund, remember to see a tax accountant immediately. After this is done, you may want to seek financial advice on retirement planning. With a few exceptions, you will want to invest your inheritance for your retirement years.

Last Updated: July 12, 2016