If you're counting on a big inheritance to pay off your debt or pump up your lifestyle in retirement, you may be kidding yourself.
According to a recent study from AARP, the median value of inheritances received by baby boomers has been around $48,000. That compares with a median inheritance for the previous generation of nearly $109,000; but, of course, many received no inheritances at all.
Of the Gen-Xers who have benefited from inheritances, the news is worse: Their median inheritance was just more than $22,000.
It's still true that the rich get richer. One quarter of all reported inheritances were larger than $100,000, and, not surprisingly, most of the people who received that cash were already among the wealthiest Americans.
One of the tax breaks enacted by this administration was the easing of the estate tax burden, and if somebody does leave you money you won't have to pay taxes on much of it. In 2004 and 2005, the estate tax exclusion, or the amount that heirs get tax-free, rises to $1.5 million. If you think that's good news, try to live just a little longer, because in 2006, the estate tax exclusion rises to $2 million.
And in 2009, current tax law says you'll be able to pass down an estate of any size tax-free.
But that doesn't mean heirs won't pay some tax.
Some portions of an inheritance you receive may be taxable. For example, if you are the beneficiary of an IRA, 401(k) or other retirement account, you will receive the cash directly. But remember, those accounts had been tax-deferred. The money was socked away without being taxed, so when you inherit the account, you will have to pay any income taxes that are owed.
Inheriting money can be tricky. And there are ways you can minimize any taxes you might owe. Be sure to get the help you need before you make a taxable mistake.
For Web sites, try www.taxmama.com and www.irs.gov. If you are inheriting a large amount of money, you will want to talk to an estate attorney or accountant.
Ilyce Glink is a syndicated financial columnist.