How to Transfer an Inheritance to a Trust
- 1). Speak with the executor or estate trustee. The estate must be settled completely before you can take your inheritance. Debts and probate costs, if any, must be cleared. As of 2011, estates valued at more $5 million have a 35 percent federal transfer tax imposed. State transfer taxes vary by state.
- 2). Meet with an accountant or financial adviser to determine what part of your inheritance will result in personal income taxes. On top of estate taxes, inherited retirement accounts that are liquidated must pay income taxes on the taxable portion. Certain stretching options exist, such as the beneficiary IRA, but you will not be able to put an IRA into a trust.
- 3). Keep the balance of anticipated income taxes in a liquid savings account so it is available when you file your tax returns or pay estimated quarterly taxes.
- 4). Establish a revocable living trust if you do not already have one. An estate-planning attorney can do this for you but may charge thousands of dollars. A simple trust states your assets and includes a last will and testament and instructions of how funds are to be distributed upon your death. A trust must be notarized to be valid.
- 5). Obtain for the trust an employer identification number, or EIN, from the Internal Revenue Service. This is available after a phone interview by calling 800-829-4933. Use the EIN to open bank and brokerage accounts in the name of the trust.
- 6). Place all remaining after-tax assets in the trust account. Cash may be placed in trust bank accounts. Stocks, bonds and mutual funds that are not part of retirement accounts can be placed in-kind into a trust brokerage account to maintain your inherited cost basis, reducing your ultimate tax liability. Any property requires a quitclaim to the deed, assigning the property to the trust. Obtain and record quitclaims with the county clerk.
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