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What Is a Cash Inheritance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2014
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A cash inheritance is one of several types of inheritances that may be received by a beneficiary or heir. Rather than being in the form of property or other belongings, this inheritance is in the form of cash or cash assets. Depending on the laws regarding inheritances in the jurisdiction where the cash inheritance is received, the heir may or may not be required to pay income tax on the cash, and may also be able to avoid inheritance tax obligations as well.

Since laws vary in regard to death duties and cash inheritance taxes, it is important to consult an attorney who is well-versed in current laws regarding inheritance money. Typically, an inheritance lawyer will be aware of any thresholds that may apply to the amount of the inheritance. For example, the inheritance attorney may be able to confirm that the sum of the cash inheritance is not subject to income taxes at all, and is also not subject to inheritance taxes because the total amount is below the threshold identified in currently applicable laws. At the same time, the attorney may find that the amount of the cash inheritance exceeds that threshold, and can advise the heir on what steps, if any, can be taken to avoid inheritance tax or at least minimize the amount of that tax obligation.

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The status of a cash inheritance may not be the same for all relevant tax agencies. A federal agency may determine that the inheritance is not subject to either income or inheritance taxes, even though the amount must be accounted for on the annual tax return. At the same time, a state or provincial revenue agency may hold that the amount of the inheritance is subject to inheritance taxes, based on laws that apply in that more localized jurisdiction.

It is important to note that the laws applying to the inheritance of property like real estate are usually different than those that apply to a cash inheritance. There are some exceptions. For example, if the cash inheritance is in the form of some type of access to a pension, an Individual Retirement Account (IRA) or Individual Savings Account (ISA), the national or state revenue agency with jurisdiction may see the inheritance more as property than cash. The aid of a qualified and competent attorney is all the more important when the nature of the cash inheritance is not clear in terms of how it is categorized by current laws.

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