Inheriting money comes with a lot of emotions and mixed feelings. During this sad and disruptive period, take some extra time to plan and make logical decisions regarding your inheritance.

Fortunately, the whopping 40% federal estate tax only impacts extremely large estates; in 2022, it only applies to estates in excess of $12.06 million.

This exemption is portable, meaning that it provides couples who take the necessary steps with an exemption of $24.12 million.

In addition to the federal estate tax, about a dozen states and the District of Columbia levy their estate tax. Colorado has no estate tax.

Beyond estate taxes, six states have an inheritance tax based on the relationship between the beneficiary and decedent and the value of the estate.

Fortunately, in most states, spouses, children and the deceased’s parents are exempt from the inheritance tax. There is no inheritance tax in Colorado or at the federal level.

State-imposed estate and inheritance taxes are based on where the decedent lived — not where the heirs reside. An estate tax is levied on the estate and the inheritance tax is levied on the heirs.

Most Colorado residents will escape the burden of estate and inheritance taxes, but you need to be aware of income and capital gains tax considerations on inherited money.

Rules on the distribution and taxation of retirement accounts are complex.

Heirs typically move inherited retirement assets

from an account in the decedent’s name to an inherited IRA. Spouses of the decedent can open an IRA in their own name and treat it as though it was their own IRA to begin with.

If you take a distribution from an inherited retirement plan, you will owe regular income taxes on the amount distributed. This could result in a substantial tax bill and push you into a higher tax bracket.

Retirement assets inherited from someone who died on or after Jan. 1, 2020, are subject to the federal SECURE Act. This act eliminated the “stretch” provision to take distributions over your lifetime.

Under the SECURE Act, with a few exceptions including surviving spouses, you must exhaust the account within 10 years. You will not be charged a 10% penalty if you are under 59½. The requirement to distribute your IRA within 10 years also applies to Roth IRAS but you will not owe any taxes.

The IRS has recently proposed a requirement to take required minimum distributions over the 10-year period. This has not been formally added to tax regulations, but the IRS is expected to provide guidance by the end of 2022.

Non-retirement assets — including bank accounts, real estate and investments — receive a step-up in basis to the value on the decedent’s death.

You will not owe any capital gains tax if you sell immediately. However, you will owe taxes on capital gains, dividends, and interest earned between the date of the decedent’s death and when you sell the asset.