You receive notification that you have inherited cash or property, but don't go spending it without consulting with a financial professional. Your plans for booking a tropical vacation with your windfall might be temporarily interrupted when an estate executor, attorney or other personal representative asks you for your Social Security or alternate tax identification number before making a disbursement. Yes, in some cases you might be responsible for income reporting, but in other cases, the estate's custodian might just need to protect himself.
The government might be interested in learning more about your inheritance. While the Internal Revenue Service says that the federal government only directly collects estate taxes that affect the entire estate, eight states impose inheritance taxes that directly affect heirs. If you live in one of these states, you might have to produce your Social Security number before you receive your inheritance, and then you have to declare your inheritance as income. Understand that estate taxes are collected on an entire estate before distribution, while inheritance taxes are collected on each beneficiary.
The IRS says that if you sell inherited property for a total amount that is greater than its value on the date of the death of your benefactor, you do need to declare it as a capital gain. If you inherit real estate, you will need to produce your Social Security number to transfer the deed and pay property taxes as with any other real estate transaction. Foreign beneficiaries, without a Social Security number, alternatively can apply for a taxpayer identification number.
Insurance Death Benefits
Many private benefit custodians will require Social Security numbers to make sure they are disbursing money to the right person. Life insurance benefits are not typically taxed, but, for example, MetLife requires a Social Security number or alternate tax identification to complete a life insurance death benefit claim form.
In some cases, an inheritance could make you permanently or temporarily ineligible for certain government benefits that are based upon your income and assets. This could affect people who receive a fairly modest inheritance too. Consider the example of Supplemental Security Income benefits. The Social Security Administration says that an inheritance is counted as income for the month it is received, and even a small amount could make an individual ineligible for the month. If the recipient keeps the money, and it exceeds the $2,000 that benefit recipients are allowed to have, it could disrupt eligibility for a longer period. In this case, it might be prudent to consult with an attorney before accepting funds.
Based outside of Houston, ML Katz has been writing financial articles since 2000. During that time, she also worked as a financial professional and website developer. She received a Bachelor of Business Administration with a concentration in information systems from the University of Texas, Austin in 1981.