It seemed that receiving an inheritance would always be a good thing. After all, it’s giving you property or money that you wouldn’t otherwise have.
However, some assets come with strings attached – they may be taxable or require some extra work to cash in on their value. Others may actually cost you money without any promise of a financial return.
Here are some of the worst assets to pass down.
1. Timeshares
Timeshares are sold with the promise of free vacations, but are laden with annual maintenance fees and are notoriously difficult to dismantle.
“Some people may not see it as an asset, but a liability,” said Nick Hughes, wealth advisor Visionary Horizons Wealth Management in Knoxville, Tennessee.
Luckily, if you inherit a timeshare, you can walk away from it if you think it’s more of a hassle than it’s worth. “You have the right to disclaim property,” Hughes told Money Talks News.
2. Family business
Family limited partnerships can be an effective way to transfer wealth before a person’s death, according to Mallon FitzPatrick, head of wealth planning and managing director at wealth management firm Robertson Stephens.
However, inheriting part of an ordinary small business may not be ideal. This can cause many problems, from strained relationships if there is disagreement among family members about the future of the business to financial headaches if there is no formal succession plan in place.
What’s more, selling your business or cashing in your stock can be a complicated process.
3. Traditional IRAs
IRAs are popular retirement accounts, but if you inherit the traditional type, be prepared to pay some taxes on your windfall.
“The IRS considers that to be non-taxable income,” Hughes said. With a few exceptions, heirs are expected to withdraw all money from the inherited IRA within 10 years. “This has the potential to land you in a very high tax bracket,” according to Hughes.
On the other hand, if you inherit a Roth IRA, rejoice. It is one of the best assets to inherit because taxes have already been paid on the money and in most circumstances you won’t owe the IRS a dime.
4. Collection
Inheriting a collection of baseball cards, coins, or comic books can be valuable, but it may also take a lot of work to convert those assets into cash.
“I believe there is a market for $100,000 comic books; I just need to find them,” FitzPatrick told Money Talks News.
5. An heirloom that has no value
It’s also possible that you could inherit a collectible or heirloom that has little or no monetary value.
While ending up with items that might be trash is one problem, another is that you can walk away with something that has sentimental value to other people. It can result in painful disagreements and hurt feelings between heirs.
To avoid that problem, Hughes recommends his clients attach a personal property memorandum to their wills with instructions on how certain items will be distributed. While not legally binding in all states, “it can reduce a lot of fighting,” says Hughes.
6. Anything stated in the will
Whether it’s a collector’s item or a pile of cash, anything listed in a will is likely to cause headaches for the heirs.
“It will likely be subject to probate,” Hughes said.
The probate court is responsible for enforcing the provisions of the will. That means you’ll be paying fees and waiting for the courts to finish their work before you can take ownership of your inherited assets. Some states have simplified probate processes for small estates.
To circumvent the probate process, one may name beneficiaries or use transfer-on-death designations for multiple financial accounts. Another option is to create trust and place assets there. Then, they can be distributed to beneficiaries after death without having to go through a probate court.
