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Making financial decisions after the loss of a loved one can be stressful. But having a better understanding of your options, as well as some general terms and rules regarding inherited money, can help make the process a smooth one once you’re ready to talk to your financial services professional.

Coping with the financial aspect of losing a loved one

On top of working through the emotional part of losing a loved one, you may also be facing an ever-growing list of financial obligations. We’ve designed these takeaways to help relieve some of the burden you may be feeling.

  1. Make sure you have any documents needed to manage your loved one’s estate.
    Look for a will or trust, insurance documents, funeral wishes, death certificate or even your marriage license, if it was your spouse. It can help to make a list of everything your loved one owned, may have owned or owed so you can cancel or change the names on assets, as needed.

  2. Spread tasks out over time.
    If you take your time and spread out the tasks, it may be simpler to take care of your loved one’s financial affairs. Make a list of what needs done and address those items as your time and energy allows. This can include things such as:
    • Consulting a financial services professional to help when it comes to taxes, legal matters and investment management
    • Contacting any financial institutions that hold investment accounts to find out if they have beneficiaries
    • Calling credit card companies to close accounts
    • Contacting utility companies to change ownership
    • Settling outstanding loans, bills or tax accounts
    • Getting in touch with government agencies such as Social Security, Medicare and Medicaid

  3. Involve the professionals.
    If there’s a will or a trust, it may be best to contact your loved one’s estate planning attorney for advice on what to do next. They can help with the probate process.

    Also, it’s required by law to file a tax return in your loved one’s name. So you may want to contact an accountant for help preparing and filing it.

Understanding your options for inherited money

There are details about the payouts from annuities and life insurance policies — including how they’re taxed and how you can receive payments — that you should consider before receiving your inheritance.

The following answers can help guide you through some of the most frequently asked questions.

For annuities

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An annuity is a long-term, tax-deferred contract issued by a life insurance company. It’s designed to turn the investment made in the contract into regular payments that can last a lifetime. This is called annuitization.

When your loved one purchased the annuity, they had the option to name one or more beneficiaries. And those beneficiaries are then eligible to receive payments when your loved one passes away.

Every situation is different, but 2 common ways that people receive annuity money are in a lump-sum payment or in incremental amounts during the first 5 years after the contract owner passes away.

Another payment option is to reinvest in an inherited annuity. For this type of payout, you can either:

1. Annuitize the proceeds to create a stream of income for a set period or for your lifetime.

- OR -

2. Use the proceeds to purchase a new deferred contract with either a 5- or 10-year payout option or for your lifetime.

These aren’t the only payment options available, though. Your financial services professional will be able to provide a more comprehensive list and can help you determine which option might be right for you.

When thinking about how to invest your inheritance, there are a variety of choices available. It’s important to think about what your needs are and what you want to achieve, including:

  • Do you want to accumulate assets?
  • Do you want to preserve wealth?
  • Do you want to have guaranteed income?

Your answers to these questions will help your financial professional guide you to the option that’s right for you.

Inherited annuities are taxable as ordinary income in the year that you receive the payment(s). So, the amount and timing of the taxes you’ll owe depends on the type of payment you choose.

For example, if you choose to take a lump-sum payout, where you get the money all at once, you’ll typically have the largest tax liability.

On the other hand, reinvesting in an inherited annuity can help minimize the tax liability by spreading it out over time.

For life insurance

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A death benefit is the money that you, as the beneficiary, receive from a life insurance policy when your loved one passes away. This money is usually income tax-free.

Life insurance policies enable your loved one to provide you with assets to help with things such as:

  • Replacing lost income
  • Covering college expenses
  • Paying off a mortgage
  • Covering funeral expenses or estate taxes
  • And more

Every situation is different, but these are the most frequently used payment options:

  • Taking a lump-sum payment
  • Taking installment payments
  • Placing the funds in an interest-earning account
  • Investing in an annuity with one of the following:
    1. Annuitize the proceeds of the life insurance policy to create a stream of income for a set period or for your lifetime.
    2. Use the proceeds to purchase a deferred contract with either a 5- or 10-year payout option or for your lifetime.

Your financial services professional can provide a complete list of payment options and discuss which one might be right for you.

Generally, the life insurance proceeds you receive as a beneficiary are not included in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.

Keep in mind that reinvesting in an annuity could also help minimize any tax liability you have by spreading it out over time.

We’re here to help

If you don’t already have a financial professional, we have experienced specialists available who can help you better understand all your options. We offer:

  • Personalized financial goal setting and attainment planning
  • Ongoing professional support with no rush or time restrictions to make decisions
  • No cost, fees or sales pitches

Schedule a time to talk about your investment options or call us at 1-844-457-7982 between 9 a.m. and 6 p.m. ET weekdays.

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Call our Solutions Center at 1-800-848-6331 between 8 a.m. and 8 p.m. ET weekdays for help with your claim.

Please keep in mind that annuities have limitations. They are designed for long-term retirement goals. They are not meant to be used as emergency funds, as income for day-to-day expenses or to fund short-term savings goals. Before deciding on an annuity, you should consider your income needs, risk tolerance and investment objectives. Your investment professional can help you decide whether annuities are a suitable investment and can help you pick a Nationwide® annuity. Federal tax laws are complex and subject to change. This information is based on current interpretations of the law. Nationwide doesn’t offer tax advice. Please talk with your attorney or tax advisor for answers to specific questions.