Receiving money or property comes with obligations, whether you work for it or receive it through inheritance. If you’re named in a will or financial document as a beneficiary, you receive funds or specific property upon the death of the owner. You may be the beneficiary of a trust, an insurance policy or an estate -- or any legal instrument that makes a distribution. Heirs or direct descendants and collateral heirs or relatives are often beneficiaries, but you don’t have to be an heir if the document names you a beneficiary.
Know the Relationship
The executor or trustee has power over your property until he completes his duties and distributes the property to you. The executor or trustee owes you a fiduciary duty to take care of your interest in the property. A fiduciary duty includes loyalty to your interests and a duty of care. You're entitled to an accounting of the property, including an inventory, a record of expenditures and revenue reports. A good trustee or executor keeps you informed, and as beneficiary, you're obligated to allow the trustee or executor to perform his job and care for the property on your behalf.
The executor handles the probate of a will and can’t usually distribute funds to beneficiaries until the probate court approves the will and distribution. The executor must pay debts and taxes before you receive any money. To accept the distribution, you’ll need to sign receipts the executor requests for transfers to you as a beneficiary. The executor may have additional duties under the will, and your cooperation makes his job easier. A trustee holds a similar position over a trust. As beneficiary, read the documents carefully to understand your role.
The executor files tax returns for the estate and the decedent, paying any state or federal taxes due. You might have tax liability from income-producing assets such as stock. You might owe capital gains taxes on profits from your distribution. Once you receive a distribution as a beneficiary, you’ll need to keep records, report any income to the Internal Revenue Service and pay any taxes due.
If you are the beneficiary of an individual retirement arrangement from a spouse, you can elect to be the owner and not the beneficiary. You are obligated to take a minimum distribution from the IRA when you reach 70 1/2, and you can’t use the IRA for prohibited transactions. Prohibited transactions include using the IRA as security for a loan. If you are the beneficiary from anyone other than a spouse, you remain the beneficiary subject to special rules. The minimum distribution calculations aren't the same as for your personal IRA. Tax laws are updated often, so check the IRS.gov website for current tax regulations that apply to your distribution.
- Comstock/Comstock/Getty Images