Some of your inherited wealth comes with hidden financial burdens. Although taking in property, investments, or collectibles may seem like luck, many costs, taxes, and maintenance possibilities pile up.
A 2023 Wealth Report by Union Bank of Switzerland (UBS) states that nearly 35 percent of high-net-worth individuals who have received inheritance regret inheriting certain assets for reasons beyond their wildest imagination. On the eve of inheritance or before passing assets down to heirs, knowing which assets may cause additional trouble is essential. Are you considering the long-term costs of what you might be inheriting?
Here are 10 assets to think twice about inheriting and what you should do instead to protect your finances.
Vacation Homes That Drain Your Finances
It’s glamorous owning a vacation home, but when you own that property, you will spend all your dollars paying taxes for your property, maintenance, and insurance. Annual property taxes of $10,000 per year are not unusual in high-tax states such as California or New York.
Before accepting an inheritance, determine the ongoing costs and see if you could rent it out to cover the other. Alternatively, selling the property and investing in more liquid assets might be a better financial move.
Classic Cars That Are Money Pits
Keeping and insuring a vintage car is expensive. According to the Hagerty Classic Car Index, posh vehicles also have their frills, and some restored classic cars cost $5,000 or more a year to maintain.
Unless you are willing to shell out vast amounts of cash, selling a classic car and investing the funds in appreciating assets like taxable stocks and tax-free real estate might be a wiser financial decision.
Family Heirlooms with No Real Value
At face value, heirlooms sound great for many families to pass down, as you would think they hold significant financial value. Still, sentimental items don’t always equate to valuable ones. An antique trader reports that 80% of inherited collectibles today, such as china sets and furniture, have no market value; leave them.
If you don’t have a personal investment in an heirloom, you can give it to an auction house specializing in selling such items or donate it to get a tax deduction and prevent it from gathering dust.
Timeshares with Lifetime Fees You Have to Pay for
The maintenance fees and selling timeshares are notorious. Even if they hardly use the property, owners have paid over $1,200 per year in maintenance fees.
Rather than inheriting a timeshare, you should explore exit strategies; there are even companies who can legally get rid of your timeshare contract. Alternatively, rent it out to recoup the expense rather than hanging on to it.
Rental Properties with More Hassle Than Profit
Rental properties can pay, but some inherited properties include tenants with problems, expensive repairs, or substantial tax burdens. Typically, estate tax laws at the IRS require some capital gains tax to be paid when inherited rental properties are sold.
Before accepting an inherited rental, it pays to assess its profitability. If the income is insufficient to cover the expenses, selling or hiring a property management company might be better.
Boats That Are Expensive to Maintain
Burning boats quickly requires annual insurance, storage, and upkeep costs of thousands of dollars. The boat maintenance average figure is more than $4,300, according to a Boat Owners Association of America study.
Rather than inheriting a boat, sell it and put that money into experiences like renting a boat when needed. Still, you don’t have to take full financial responsibility.
Jewelry That’s Hard to Liquidate
Often, fine jewelry is worth less when resold. A Jewelers of America report points out that most secondhand jewelry sells for 20-50 percent less than its original purchase price.
Have the jewelry you are inheriting appraised if you are unsure what to do with it and whether it is worth keeping. Pawn shops generally offer worse resale rates than certified buyers and auction houses.
Art and Collectibles That Are Difficult to Sell
Value is way down to art and rare collectibles, no matter how valuable they appear, as it can take years to find a buyer. According to estimates from The American Society of Appraisers, only about 10% of the inherited art pieces sell for the appraised amount of the pieces.
In such cases, you should consult an art investment advisor or donate the artwork to a museum to claim a potential tax write-off.
Overly Involving Businesses
However, inheriting a business may seem like a golden opportunity, but running a company requires significant time, effort, and financial input. A Harvard Business Review study says that 70% of inherited family businesses go under in the second generation because they lack interest or expertise.
Before accepting a business, test whether you have the skills required to run it or if it would be better to sell it to someone who does. The money from the sale could then be invested in a diversified portfolio.
Farmland That’s Costly to Maintain
Having farmland might seem appealing, but it would bring property taxes, irrigation, and labor costs to bear. According to the U.S. Department of Agriculture, many small farms do not make a profit, and a number are even at a loss.
If something has been in your family to inherit farmland, then maybe it’s best not to stick around and do it yourself. Selling the land and reinvesting in less labor-intensive assets may be a financially better alternative.
Disclaimer – The Finance Key does not provide and does not intend to provide financial, investment, tax, or legal advice. Information contained in this article is for informational and educational purposes only. This list is solely the author’s opinion based on research and publicly available information. The inclusion of links to third-party content is not an endorsement by The Finance Key of such content or services. Please do your due diligence and use your discretion.
Disclosure: For transparency, this content was partly developed with AI assistance and carefully curated by an experienced editor to be informative and ensure accuracy.
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