If a loved one has recently passed away and has left you an inheritance, before you cash that check, you need to make sure that all the money you have been given is actually yours. No matter where you live, the federal government has a right to be paid certain estate taxes before the money is distributed. Depending on where you live, your state may also levy their own inheritance tax as well. That's why it is vital that you make sure the money is really all yours before you cash the check. Here are three things you need to do before you cash that check:
Make Sure That All Estate Taxes Have Been Paid
The first thing you need to do is make sure that all estate taxes have been paid. Technically, the federal government gets first grabs at any money, stock or significantly valuable property that your loved one left behind. The federal government can seize whatever assets were left over in order to fulfill any estate taxes that are due.
Before anyone is paid their inheritance, the federal government should come first. If you are the executor of the will, you are responsible for paying the estate taxes first. If you don't know how to go about that, a certified public account or CPA can assist you with that process.
If you are not the executor of the will, ask to see the tax return that was filed on behalf of the deceased estate as well as a closing letter from the IRS before you accept and cash any inheritance check. This is one of the best ways to protect yourself. If you cash an inheritance check before the IRS gets their share, you could be liable for the estate tax down the road.
Make Sure All Inheritance Taxes Are Paid
Next, once you have taken care of the federal government, you need to make sure that your state does not collect inheritance taxes. Luckily, most states don't collect inheritance taxes. However, there are a handful of states that do, including: Pennsylvania, New Jersey, Nebraska, Maryland, Kentucky, Iowa, and Indiana.
If you live in one of the states listed above, you are going to need to figure out how much you owe in taxes before you use that check. A CPA can help you figure out exactly how much you owe and can help you file those taxes.
Before you cash that inheritance check and start spending all the money you just got, make sure that some of it doesn't belong to the federal government or to your local state government. You don't want to spend the money and find out down the road that you now have unpaid taxes to take care of. If you are expecting or get an inheritance, run it by a CPA like Amos Maney & Payne CPA's LLC to make sure that you can spend it as you wish first.