Rowley Law

What Assets to Leave to Your Family

Losing a loved one is hard enough. Make it a little easier by leaving a clear cut plan for your assets with estate planning. 

As you get older, you, your older relatives or both may need to address questions about how to leave assets to others when you pass away. The more assets you have, the more complicated things can become. The Investopedia article, “Estate Planning: Which Assets Are Best to Leave Your Family,” says that there are three main factors to consider when looking at how to distribute assets: liquidity, sentiment and tax planning. Each of these impacts what makes the most sense when leaving your assets.

Liquid assets can be converted to cash quickly with little effect on the price of the asset. If your estate is mostly hard assets, your heirs might be tasked with selling them for a discounted price in order to find the cash that’s needed to pay any estate tax. You should consider this when preparing your estate plan. Liquid assets are the easiest to leave to family, and the more assets you can liquidate, the easier you will make things for your heirs.

Other assets are valuable beyond money and may have wonderful memories attached to them, or they may have been passed down through the generations. Much of the real estate in estates is sentimental, and how to leave these homes to your heirs is a very personal and often difficult decision. The planned distribution of these types of assets should be discussed long before the person’s passing in order to eliminate any fighting after the person’s death.

These estate planning questions are hard to answer for most of us. They will involve taxes: most assets receive a step-up in basis upon death if the asset has appreciated in value. But some assets don’t get this step-up in basis—like retirement accounts. Other than qualified accounts, there’s not much difference between hard and virtual assets when it comes to the tax implications in estate planning with the federal estate tax. The tax treatment is the same, and the estate tax is assessed on the fair market value of an asset on the date of death (or the alternate valuation date). Remember, you should consider the tax implications when planning the transfer of assets in your 401(k) and IRA accounts.

Capital gains, death and income taxes all come into play when planning for the transfer of wealth from one generation to the next. Comprehensive estate planning always includes a discussion of these tax implications and ways to avoid or minimize the tax bite on your estate.

Reference: Investopedia (June 27, 2016) “Estate Planning: Which Assets Are Best to Leave Your Family”

Tighten Up Those Loose Ends in Your Estate Plan

“When executed properly, estate planning can minimize legal fees, decrease taxes and lower administrative expenses.”

Loose ends in estate planning can lead to lost opportunities, stress, last-minute fixes or—worst of all—failing to designate money to family, friends and charities. This can have a severe impact on your estate.

Kiplinger’s recent article, “5 Simple Steps to Decrease Your Estate Costs,” offers some steps to minimize your future estate costs. You should speak with your estate planning attorney if you haven’t already.

1. Update your beneficiaries. When you pass away, some of your estate may not pass by your will because retirement plans, life insurance and transfer on death (TOD) accounts go directly to your beneficiary. For example, if you name your sister as the TOD beneficiary of your bank account, she needs to only give the bank a copy of your death certificate for the funds to be transferred without probate. It’s the same for your IRA or life insurance policy.
2. Cash in any physical bonds and stock certificates. Physical securities and government bonds are all too often lost or forgotten—they can be left to mature without paying any more income. With a stock certificate, the stock may have split or paid dividends that weren’t collected properly. Unfortunately, these assets can appear after probate has been settled, which can result in the estate being reopened. Turn in stock certificates and keep them in electronic format.
3. Review property deeds. If you just had your estate planning attorney draft a trust without changing the deed to your real estate to reflect ownership by that trust, most states would not let the real estate pass through your trust. Instead, it will pass through your will and probate when you die. The results of this can be pricey. A trustee can list the house for sale within hours of your passing, but an executor of your will must first collect documents and procure family signatures to begin the probate process, then apply to the court and—in some states—even get court permission to sell the house. You'll have wasted thousands of dollars paying for real estate taxes, utilities and other carrying costs.
4. Consolidate your accounts. Too many accounts mean more work and more expenses. Consider keeping fewer, larger accounts. Leaving a distant nephew $500 in your will may cost you more than leaving it to him in a trust.  
5. Keep track of your family. Small families should name all of their nearest relatives because many states require a list of heirs under a will, despite certain family members not getting anything. For example, if a widow has no children but has 20 nieces and nephews living throughout the country, these relatives will all have to be found if she leaves any property to be distributed under probate. The costs for finding these folks may eat up all of her estate. Keeping track of family members and accounts will allow your estate to avoid paying extra expenses.

Reference: Kiplinger (July 2016) “5 Simple Steps to Decrease Your Estate Costs”

Want Estate Planning? No, You Need It!

“When talking about money and how it works in our lives, we often refer to the difference between wants and needs. The challenge being that when someone really wants something it can start to feel like a need.”

Estate planning is a need, but too often it gets moved down to the list for tomorrow.

There are many reasons people put off estate planning, like discussing death and dying. The (Memphis TN) Daily News recently published an article, entitled “Estate Planning – It’s a Need,” that explained how one person might be a great choice for guardian, trustee, power of attorney or executor. However, what if when the time comes they’ve moved or don’t want the responsibility. What does your family do then?

What if a person named in the will needs to be removed later? What if estate laws change or your circumstances change and there’s a better option?

There will always be changes in our lives. We may live to see our children grow to be adults when they no longer need a guardian. Then again, about that time our parents will age and may need a guardian. We switch jobs, get promoted or get laid off. Investments go up and down. Laws will change, and new legislation will be enacted. These are all important factors on the list of what needs to be addressed in estate planning.

Estate planning is important and it requires significant time and effort. Without a comprehensive estate plan much or all of what you’ve achieved in your life could be lost or given to unintended beneficiaries.

A good way to plan is to draft your will like you were going to die today. Once you have that done, create a review system to ensure your will remains relevant and up-to-date. Talk with a qualified estate planning attorney and let him or her guide you through the process.

Effective estate planning will typically reduce your taxes and those of your estate. In addition, it can save time and expense when settling an estate.

Develop a good working relationship with an experienced estate planning attorney.

Instead of the surviving spouse or children searching for hours through papers and trying to determine what to do next, you should consult with an attorney who will have the documents in hand to help guide the process with minimal impact on the grieving family.

Reference: The (Memphis TN) Daily News (Sept. 23, 2016) “Estate Planning – It’s a Need”

Make Certain Your College-Bound Kid Has Packed a Health Care Power of Attorney

“Your 18-year-old is off to college. Clothes? Check. Computer? Check. Health care power of attorney?”

You thought you purchased just about everything for your child for college, but don’t forget one more important item: a health care power of attorney or health proxy.

When a child turns 18, parents don’t have much authority under federal law to remotely access medical records or make decision. With the medical privacy law HIPAA, you need to have your child’s written permission.

CBS News’ recent article, “Don't send your child to college without this,” suggests a health care proxy. It’s a pretty simple legal document that gives you the authority to make medical decisions and access their records if they’re disabled. Talk about a critical back-to-school item!

A health care power of attorney is critically important when a child has a health emergency at college.

A HIPAA authorization allows you access to your child’s medical records, which are protected by the Health Insurance Portability and Accountability Act (HIPAA). Your child is an adult, so you can’t call the health center at college and get his or her detailed health information without an authorization.

The health care proxy is more complicated. The one signing it is giving another the authority to make medical decisions for them if they become incapacitated. An agent for health decisions is appointed with the proxy. The proxy covers a broad range of powers, and parents or other trusted individuals who are agents are allowed to speak with doctors, approve tests and examine medical records.

Prior to getting these forms, you should have a serious conversation with your college student on why the documents are important. The proxy talks about some unpleasant decision making—like specifying what treatment or care a person on life support wants and stipulating organ donation and other post-mortem issues. Some of the more detailed proxies have a questionnaire that runs through end-of-life or advanced “health care directive” decisions. As a parent, this is tough language to read, and these are difficult issues to discuss. Nonetheless, they provoke some serious thinking about quality of life in the event of a health emergency.

It’s important to know what the documents can and can’t do: they don’t ensure quality care, and you’ll still need to consult with doctors. Be sure you fully comprehend what these documents mean and how you can modify them.

Speak with your estate planning lawyer and appoint trusted family members or friends to make decisions if you or your spouse/partner can’t. You should also, at the same time, review your own estate plan. If you don’t have a will, powers of attorney or living trust, find out which documents are appropriate for your situation.

Reference: CBS News (September 9, 2016) “Don't send your child to college without this”