Will my heirs get everything?

/ June 11, 2013

School BoyAside from taxes, the topic that can typically cause the most confusion is the issue of which assets will pass to your loved ones tax free – and which are subject to estate taxation.

Knowing your estate…

There are costs associated with probate and those costs can be significant if you have not planned properly. But regardless of whether or not your estate goes through probate, it can still incur estate taxes. Each situation can be different but here is a quick rundown on common assets and how they are factored into your taxable estate.

Life Insurance

The value of life insurance is included in your taxable estate but death benefits are rarely subject to income taxes. A trust is useful to get the value of life insurance out of your estate if needed.

Retirement Accounts

Common accounts like IRAs and 401k plans will be included in your estate but if left to a spouse may qualify for unlimited marital deduction and be free from tax until removed from the spouse’s estate.

Cars/Homes/Personal Assets

The value of these assets is included in your estate if held individually. If they are held jointly, they may pass to the co-owner without probate but a portion may still be subject to estate tax depending on state laws.

Annuities

If the annuity stops at death then it is not included in your taxable estate.  However, if there are any survivor benefits, the value will be included in your taxable estate and potentially subject to estate taxation.

Business Interests

Your ownership of any business interests, even corporate shares, will be calculated into your taxable estate and might be subject to estate taxes.  However a trust may be useful to remove these interests from your estate.  This area of planning can be very tricky – so it is important to work with a qualified estate planner!

Simple Things to do Right Now

Here are 5 things you can do to ensure your assets transfer more easily to your loved ones:

  1. Make sure you have designated a beneficiary.
  2. Gift assets, when appropriate.
  3. Consider a trust for larger estates.
  4. Review your life insurance.
  5. Hold assets jointly if possible and when appropriate.

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