Many factors determine how quickly you receive an inheritance. The range of waiting periods is large -- money may be available immediately or may be tied up for more than a year. Most inheritances are governed by state laws that can differ significantly.
The biggest single factor is whether the inheritance has to go through a legal procedure called probate, in which a state court judge appoints an executor to divide up the deceased's property, or estate. People have several alternative ways to structure their wealth to avoid probate.
Little or No Wait
Avoiding probate is the key to a speedy payout. A joint account -- typically at a bank or brokerage -- co-owned by the deceased and beneficiary is immediately available. Another quick way to pass on an inheritance is through a pay-on-death account or deed, which takes effect when the benefactor dies.
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Many states have their own rules that allow small estates to avoid probate, although the maximum value of eligible estates varies. Under these laws, the beneficiary can provide a simple affidavit along with a copy of the death certificate to the institution holding the money or property and receive prompt payment. Normally, life insurance policies are immediately payable to beneficiaries upon presenting the death certificate and completing some paperwork.
Avoiding Probate Via Trusts
A trust is a common way to keep an estate out of probate court. When a person transfers property to a trust, that property is no longer considered part of the estate, except for tax purposes. Many different kinds of trusts are available, including a revocable living trust in which the trustee can quickly transfer money and property to beneficiaries according to the provisions of a trust document. The settlement process usually takes a few months. A trust's distribution can be slowed by:
- The types and values of the trust assets
- The number of beneficiaries
- Disputes among the beneficiaries
- Federal and state tax liabilities
- Amounts owed to creditors
- The diligence of the trustee
Probate Court Involvement and Deadlines
The probate court becomes involved when the deceased leaves a will or leaves no instructions. Disputes among beneficiaries also can draw the probate court into the process. A court may take several weeks to appoint an executor for the deceased's estate. Once appointed, the executor must perform a number of tasks, including:
- Inventorying and appraising assets, which might take three or four months to complete.
- Notifying creditors and settling claims. States have various deadlines, but the usual time required is about six months.
- Filing a tax return and paying any taxes. As of the time of publication, only estates valued above $11.58 million are subject to estate tax. No estate tax is due when the sole beneficiary is the surviving spouse. The executor must file the estate's tax return within nine months of death.
Only after these duties are completed can the executor distribute the estate's remaining assets, so it's easy to imagine this process taking a year or longer to complete.
IRA Beneficiary Deadlines
If you are the sole beneficiary of your spouse's individual retirement account, you can take title to the IRA or transfer it into your own IRA as soon as you complete the paperwork provided by the IRA custodian -- a matter of days or weeks. Distribution may take a lot longer if the beneficiary is not a spouse, there are multiple beneficiaries or one of the beneficiaries is not an individual. There are three deadlines to bear in mind:
- Disclaiming period: An IRA beneficiary can disclaim the inheritance within nine months of the owner's death. Someone else then becomes eligible to inherit the IRA.
- Designated beneficiary date: When multiple individuals or a non-person -- a trust, foundation or charity -- are beneficiaries, the IRA custodian must name a designated beneficiary by Sept. 30 of the year following the year of the owner's death. This designation affects how quickly the recipients must withdraw money from an inherited IRA.
- Rollover period: A surviving spouse who doesn't take ownership of the deceased's IRA can roll it into her own IRA within 60 days of the owner's death.