Are you hoping you’ll receive an inheritance someday that will help you pay off your debts?

If you’re counting on a big inheritance to pay off your debt or pump up your lifestyle in retirement, you could come up empty.

According to a recent study from the AARP, the median value of inheritances received by baby boomers was around $48,000. But take a look at how much money those born before the boomers received: the median inheritance for those individuals was nearly $109,000. That’s a whole lot of cash, but for Gen-Xers, the news is worse than for the boomers. Your median inheritance was just over $22,000.

One quarter of all reported inheritances were larger than $100,000 and yet most of the individuals who received that cash were already among the wealthiest Americans.

Of course, one of the tax breaks enacted by this administration was the easing of the estate tax burden. In other words, you can now leave a whole lot to your heirs without paying taxes.

In 2004 and 2005, the estate tax exclusion or the amount that you can leave to your heirs 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, even if the amount to the estate is a lot lower.

There may be taxable portions of an inheritance you receive. For example, if you are the beneficiary of an IRA, 401(k) or other retirement account, you’ll receive the cash directly. But remember, those accounts are tax-deferred. You get paid today and the money gets socked away without being taxed so you’ll still have to pay any income taxes that are owed when you inherit the account.

Inheriting money can be tricky. And there are ways you can minimize any taxes you might owe. So be sure to get the help you need before you make a taxable mistake. For websites, try and If you’re inheriting a large amount of money, then you may want to talk to an estate attorney or accountant. Copyright © 2003, WGN-TV

December 2, 2003