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Trust Attorney Answers, “Is it Better to Inherit Stocks or Cash?”

Posted by Susan Katzen | Nov 11, 2022 | 0 Comments

Inheriting any assets from someone's estate could benefit a person financially. However, it can also create some challenges. Cash and stock inheritances come with various advantages and disadvantages. Although they provide the funds someone might need to pay necessary expenses or grow their portfolio, some complications could arise.

When you're inheriting either cash or stocks, one isn't better or worse than the other. Each offers benefits. Having money in hand upon a family member's death means the ability to use it immediately for any purpose. However, there's also the risk of quickly running out of the entire inheritance. A stock inheritance allows someone to start or add to their investment portfolio. However, it can also lead to tax liabilities.

Understanding the similarities and differences between stock and cash inheritances is critical to making the necessary decisions about how you should structure your estate plan to protect your family's interests and future.

Understanding Inherited Stocks

An inherited stock is stock a person inherits from the original equity holder. Whether the deceased invested in the stock market by purchasing shares or received a stock option from an employer, the beneficiary could receive a portion or all of it upon the equity holder's death.

Beneficiaries can do what they want with the stock they inherit. The options are to keep or sell it. If someone decides to keep the inherited stock, it isn't subject to a tax by the Internal Revenue Service.

However, there could be tax liabilities if your loved one decides to sell. They must pay capital gains tax on the difference between the stock's value when they acquire it and the amount they sell it for. If they don't understand the possible tax implications, they might make a decision that negatively affects their finances.

Understanding Inherited Cash

Receiving cash from a deceased relative is bittersweet. The beneficiary must cope with their loss, but suddenly, they have money they didn't have before. Depending on the amount, it might secure their financial future or at least help them invest in their future.

A cash inheritance might seem beneficial, but there are some drawbacks you should understand. The money might be subject to an inheritance tax. It depends on where you live and other contributing factors.

Unlike an estate tax that the executor handles using assets in the estate, an inheritance tax requires the beneficiary to pay. That means your family member could owe money just for receiving the cash from your estate when you die. They might not realize this and could spend all of it frivolously. If they do, they won't have anything left to use to pay the inheritance tax and could fall into more debt.

Contact an Newport Beach Estate Planning Attorney Today

Knowing the necessary steps to take after receiving an inheritance can be confusing. Many people feel overwhelmed by a sudden influx of cash in their bank accounts. Handling stocks can also be stressful, especially if someone has never invested in stocks before.

You should consult an experienced Newport Beach trust attorney from our firm immediately if you consider leaving money or stocks to a loved one. We can review your circumstances and advise you about the available methods to ensure that your loved ones receive an inheritance upon your death. We can also look into the estate and tax laws to determine if there's a way to prevent your named beneficiaries from facing significant financial consequences when they receive their inheritance.  To get started, simply contact our office at 714-374-2244.

About the Author

Susan Katzen

"I firmly believe our clients should be treated the way I would want my own family members to be treated. As a result, not only have I put together a compassionate and highly skilled team of people, but together we have served families from the grandparents down to the grandchildren. My staff and...

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