Handling new wealth checklist

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Newfound wealth can feel like a blessing.
One of the things that may help extend that feeling is to understand the potential tax complications. You should consider talking issues through with a tax professional. You may even find that it's prudent to create a fund now to meet anticipated future tax liabilities. Here's a list of the different types of taxes you may have to deal with. As you go through it, keep in mind that different states have different rules.
  • Federal, state and local income taxes may be imposed. While inheritances may not normally count as income, payments like buyouts, fees and winnings could be. Even though you may not need to formally pay any taxes due until you file, the IRS and many other jurisdictions require estimated tax payments if your tax liability for the year won't be covered by your tax withholdings.
  • Transfer taxes may be assessed. Real estate transfers often include a tax, and that tax is often paid by the buyer (or the recipient). Transfer taxes may also be assessed if you receive investment securities and valuable personal property such as fine art, jewelry or antiques.
  • State inheritance taxes may be due. The IRS and some states collect any estate tax due from the estate itself, before assets are distributed to beneficiaries. However, some states require beneficiaries to account for their shares of a taxable estate and to settle their state tax liabilities individually.
  • Ad valorem taxes are taxes assessed periodically on the value of an item in your possession rather than on a cash flow to you. Some jurisdictions consider investment securities to be taxable personal property, and levy taxes on them in the same way they do on real estate, automobiles and jewelry.

What are you going to do with your new wealth?

Before you start spending money, think about where you are going to put it until you are ready to use it.
  • If you are receiving stocks, bonds or mutual fund shares, you may need to open a brokerage account if you do not already have one
  • If you anticipate a large cash payment, consider a separate cash management account to hold it in reserve until you can formulate an investment strategy

New money may open up new possibilities

Think about how any new priorities might fit with your current plans and goals. It's quite likely that you'll still need your existing savings plans, and you may find ways to benefit from reducing your debt.
  • Consider putting as much as you can into any employer-sponsored retirement savings program and evaluate opportunities for an IRA. You may find that an annuity might be beneficial.
  • Make sure you're financially prepared for your children's future education needs. Consider making full use of 529 plans, Coverdell educational savings accounts and other tax-favored education savings vehicles for all your children.
  • If you have loans or outstanding debt, weigh the potential return you could earn from new wealth against the cost of carrying that debt. You may find it's time to speed up some repayments. Prime candidates may be credit cards and other consumer debt, student loans and home equity lines of credit.

New money may let you do more in the future

Consider how you can use your estate plan to extend the reach of your wealth.
  • Think about the amounts of your bequests to the people in your life you care about. You may want to increase some of them.
  • Has it been important for you to leave a legacy through good works? You may be able to help do even more good by increasing your charitable efforts.
  • Any trusts you might have created were probably built to make the most of the resources that you had at the time. You may find that your new wealth has changed your circumstances enough to justify rethinking your existing arrangements.

Did your new wealth come with any strings attached?

If there are, you may want to take the time to understand those special terms or conditions now.
  • There could be limits or restrictions on how you could use the money or the items
  • You may be required to do something or avoid doing something in order to qualify
  • Some bequests may depend on specific market events or other outside conditions
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The material was authored by a third party, DST Retirement Solutions, LLC, an SS&C company ("SS&C"), not affiliated with Merrill or any of its affiliates and is for information and educational purposes only. The opinions and views expressed do not necessarily reflect the opinions and views of Merrill or any of its affiliates. Any assumptions, opinions and estimates are as of the date of this material and are subject to change without notice. Past performance does not guarantee future results. The information contained in this material does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy. Before acting on any recommendation in this material, you should consider whether it is in your best interest based on your particular circumstances and, if necessary, seek professional advice.

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