Do inheritance checks get reported to the IRS? Do these checks get reported? What are you going to do about that if they do it?
Cash & Cash Equivalents
There’s the publication or the form that transactions get reported with the IRS, which is form 8300. It says that, yes, transactions over $10,000 must be reported by banks and financial institutions to the IRS. But it’s not every transaction, not every deposit, not every check. So, what’s it?
It’s $10,000 of cash or cash equivalents. An actual regular check won’t qualify. But if it’s a money order or a cashier’s check, then that bank does have to report to the IRS that this transaction happened.
What happens with that? The IRS uses that data to do whatever they are going to do. They use that in some way, and they probably cherry-pick the red flags and go after and investigate them. Should you worry about that with your inheritance? Typically, no.
Most of the time, the inheritance is going to be paid to you with a regular check, not a money order, not a cashier’s check. It’s going to be paid to you with a regular check drawn on the bank account of the estate or trust. It might come to you on a wire transfer, and wire transfers don’t qualify. So, most of the time, you’re going to be okay.
What if you do get cash? What if you do get a cashier’s check? The bank will report it. Do you have to report it? The rule around individuals who receive an inheritance is no, you don’t. But the bank is going to report it, and that’s good enough.
Real Estate
If you’re inheriting a house from an estate or trust, then the estate will simply transfer the deed into your name. That transfer happens at the County Recorders office and is usually not reported anywhere else. If the real estate is sold by the estate or trust and then you inherit the money, that’s different. But transferring the home to you is not reported to the IRS.
Inheriting Retirement Accounts (401k, IRA, Roth, etc.)
Now these are different. If you inherit a retirement account, you’ll get a new account setup in your name as an “Inherited IRA”. That account will require you to take distributions within 10 years of the death of the decedent and there’s the problem.
Those distributions over that 10 year period will be ordinary income to you. So, yes, those distributions will be reported to the IRS and you will owe taxes on that distribution as if you earned that much more money that year. This is a tough result for beneficiaries, but there are some tax planning strategies you might want to consider if you don’t like giving your money to the IRS.
Make Some Money With Your Inheritance!
If you’re receiving $100,000 or more in inheritance, maybe now is the time to get your own financial plan put together. Maybe you also have an old 401k or retirement account you’re not sure what to do with. If you want to get a clear picture on how to save and invest your inheritance or retirement accounts so you don’t wake up in 10 years wondering where your inheritance check went, Francisco Sirvent is also a financial advisor and might be able to help. Check out what he does under the Retirement Management Office and schedule a free call with him.
Summary
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don’t qualify for reporting. Keystone Law Firm is here to help you get your affairs in order and ensure your compliance with the law.
