How Does an Individual Receive Inheritance Money?

We all hear stories about people inheriting money, whether they inherit it from a family member or a distant benefactor. But what if that recipient happens to be you? It’s important to know what happens in this situation, as well as how you can avoid risk and ensure that you and your loved ones receive an inheritance exactly as you were meant to.

How does someone decide to give you money?

Unlike some of the characters in our favorite Victorian novels whose long-lost great aunts suddenly die with no children of their own to inherit their modest fortunes, the modern equivalent to inheriting money is less romantic — and usually more complicated.

In order to choose where their money and assets should go after their death, would-be benefactors must prepare a series of documents — including a will or power of attorney — detailing exactly how they want their assets divided. This process is known as estate planning, and makes it much easier for a benefactor’s loved ones to pass on inheritances efficiently.

How do you receive inheritance money?

If you know you’re the beneficiary of a deceased person’s assets — whether those assets constitute liquid cash, stocks, real estate, personal belongings, vehicles, or a retirement plan — you may wonder how to go about actually receiving these inherited assets. After all, whatever you inherit won’t just show up in your bank account, driveway, or investment portfolio on its own.

The truth is, how you end up receiving inherited assets depends on the type of asset involved, as well as its value and the extent of the deceased person’s estate planning. In some cases, receiving an inheritance can take months; in other cases, it can take years. In some cases, the actions you take as a beneficiary can play a role in either expediting or slowing that process.

Four common ways for someone to pass on their assets

There are several ways to pass on your estate, and some of these options don’t require probate, which is a court proceeding that formally divides assets. The most common ways for someone to pass on their estate include:

Trust fund

A trust is a legal document that details how a person’s accounts and property should be divided. What differentiates a trust fund from a will, however, is that a trust fund is effective upon creation. That means the benefactor’s accounts and property are actively managed — and distributed to beneficiaries — while the benefactor is still alive. If you’ve ever heard someone called a “trust fund baby,” the term might make more sense now; this pejorative is often used to describe a trust fund beneficiary.

So, why would you choose to set up a trust fund in place of a will? Setting up a trust makes it easier to avoid probate, in some cases making it simpler — and faster — for beneficiaries to receive their inheritance.

Will

A will is a legal document that enumerates exactly how a would-be benefactor’s assets should be divided after their death. And unlike a trust, a will is always entered into a probate court proceeding upon the benefactor’s death in order to formally distribute the assets in question. Because of this, it may take longer for a beneficiary to receive their inheritance.

Payable on death (POD)

As someone goes through the process of estate planning, they may choose to designate immediate beneficiaries for their bank accounts, retirement accounts, or life insurance plans. Specifying that an account should be payable on death is one of the easiest and fastest ways to transfer those assets to the desired beneficiaries outside of a probate court. That said, a benefactor cannot do the same for personal belongings — only a will or trust will accomplish that.

Life estate deed

The equivalent of a payable on death solution for real property is known as a life estate deed. In this case, the person who owns the property signs a deed that will automatically pass the ownership of the property to someone else upon the original owner’s death. As part of the deed, the original owner remains in ownership of the property during their lifetime.

How long does it take to receive an inheritance?

The amount of time it takes to receive an inheritance depends on the assets in question as well as the method of transfer. In the case of a will or trust (plus a probate court proceeding), receiving an inheritance may take a few months. However, if there are no legal documents detailing how a benefactor’s assets should be divided or transferred, the process could end up taking years.

Before an executor (the person overseeing the distribution of an estate) can distribute an estate’s assets, they must determine the value of an estate’s non-cash assets. The total value of an estate may have tax implications and could affect how the assets are transferred. As part of this process, the estate is required to pay all outstanding bills and debts at the time of the benefactor’s death. An estate’s beneficiaries then receive the remaining assets, minus any fees associated with the probate process, which depend on state laws and the size of the estate.

Suppose the person planning to pass on their assets wants their beneficiaries to receive and begin enjoying their inheritance before their death. In this case, they can technically gift money and property to others during their lifetime. As of 2022, a person can gift up to $16,000 per desired recipient without any tax consequences.

It is also possible to receive an inheritance early (while you wait for the inheritance to go through the probate process) through a third-party, sometimes known as a probate advance company. This third-party pays you an advance against your inheritance. In order to qualify for this, some probate advance companies require that you have a minimum expected inheritance. It’s also important to note that getting a cash advance on an inheritance could also involve fees. It may also require that you give the probate advance company a larger stake in the inheritance than you’re comfortable with.

For instance: a beneficiary might expect a $15,000 inheritance and a probate advance company agrees to advance $10,000 in exchange for rights to $12,500 at the close of probate, resulting in an overall loss of $2,500 for the beneficiary. Due to the potential complexity of working with a probate advance company, if you’re considering this route, it may be helpful to consult an attorney.

Potential restrictions on receiving an inheritance

Even if a deceased benefactor prepared a will or trust, a beneficiary may still run into some restrictions on their inheritance. There may be limitations on how any inherited money is used, for example. A benefactor may have specified that this money can only be used for educational purposes, or for buying property. If a benefactor is passing on property, they may stipulate that the beneficiary has to live on the property that they’re inheriting.

Additionally, both a will and a trust might include age restrictions around when the beneficiary can access the inheritance. The benefactor may also decide that the beneficiary will receive the inheritance upon a certain life event, such as marriage.

A beneficiary inheriting a retirement account may encounter different restrictions. For example, if a non-spousal beneficiary who is 18 years or or older inherits a 401(k) or individual retirement account (IRA), they must take payouts within 10 years and pay taxes. If the beneficiary is the spouse of the deceased, however, they can leave the money in the account or roll it over to their own plan.

What is the probate process?

As mentioned previously, the term “probate” refers to a court proceeding that manages a person’s estate after they have passed away. The goal of a probate court proceeding is to settle the deceased’s estate by paying any outstanding debts before distributing ownership of the estate’s assets to heirs and designated beneficiaries.

The 8 steps of the probate process

1. Appointing an administrator or executor

   If someone dies without a will, an administrator is appointed to execute the estate. If a person dies with a will, the will’s namedexecutor manages the estate. Both administrators and executors are responsible for settling the estate.

2. Filing a petition

   The executor or appointed administrator of a will must file a petition with the court — usually in the county where the deceased lived — in order to initiate probate. This process includes filing the will (if there is one), filling out an application with details about the deceased individual, and providing a death certificate. The particulars of this procedure vary by state.

3. Giving notice

   As part of the probate process, notice must be given to potential creditors, heirs, and beneficiaries of the deceased’s estate. State laws determine how notice is given — depending on where the probate takes place, a signed affidavit or newspaper publication could count as proof of notification. This particular step gives creditors the opportunity to submit information about any of the deceased person’s outstanding debts. Giving notice to beneficiaries, on the other hand, is only required in order to inform them that the probate has started.

4. Authenticating the will

   Before any beneficiaries can receive an inheritance, the benefactor’s will must be authenticated and deemed valid by the court. This is important because authentication provides beneficiaries and potential beneficiaries with an opportunity to contest the will’s validity. During the authentication process, the discovery of fraud, of a newer will, or of more information about the deceased person’s state of mind may delay — or in certain instances, prevent — an individual from receiving an inheritance. This is why it’s recommended for a would-be benefactor to sign a self-proving affidavit — a form constituting a short legal statement declaring that a will is valid — when they prepare their will.

5. Determining the value of the assets

   The next step in the probate process is collecting all of a deceased persons’ assets and assessing their value. Assets include everything from bank accounts, retirement accounts, vehicles, and real estate, to jewelry and art collections. If an estate’s collective value falls within a certain range (this range varies by state) a small estate affidavit may be signed to transfer assets outside formal probate.

6. Paying creditors and taxes

   Once the value of an estate has been determined, the estate must then pay off any debts, which come in the form of claims filed by creditors. If applicable, tax returns are then filed.

7. Distributing assets to beneficiaries

   After all debts have been paid, an estate’s remaining assets — minus any probate feeds — are distributed to beneficiaries in accordance with the will, or — if there is no will — by following a state’s laws of succession, otherwise known as the “order of heirs.”

8. Closing the estate’s bank account

   The final step of the probate process is for the executor or administrator to make final distributions to an estate’s beneficiaries, either as outlined in the will or as directed by state law. They then conduct a final accounting round that must reflect a zero account balance in the benefactor’s bank accounts. Once these steps have been completed, the estate’s bank account can be closed.

How to grow your inheritance

If upon receiving a cash inheritance you realize this lump sum will sit in your bank account idly — or, if you’d just like to get the most out of the cash you received — you can seamlessly earn competitive yield on these funds with Titan Smart Cash, or put your funds to work with a long-term growth investment strategy like Flagship. If your inheritance is sizable, considering alternative investments (e.g., private credit, real estate, or venture capital) to diversify your portfolio could also prove valuable if suitable for you.)

The bottom line

Grasping the probate process is crucial to understanding how and when you will receive an inheritance. It also prepares you for another aspect of the aftermath of a loved one’s death. Obviously, the passing of a loved one is often difficult for reasons beyond questions of finances or inheritances, but knowing what will happen on a practical level with a deceased loved one’s assets can help you avoid untimely surprises and prepare for making the most of your inherited cash. If you want to learn more about how Titan can help you grow your wealth, download the app today.