Having to handle the estate of a loved one can be a difficult time because of the emotional ramifications that come along with making these financial decisions. We found an interesting article that explored the author’s personal experience with having to oversee his mother’s estate and everything that came along with that.
(Click the featured times below to jump forward in the episode)
We recently came across an article online where the author shared their experience handling the mother’s estate as her health began to decline. It talked about all of the decisions that needed to be made and discussed the different tax implications associated with the options available.
After reading through it, we wanted to spend some time on the podcast sharing our thoughts on what was written but also this scenario in general. Estate planning is a crucial part of the overall planning process and one that’s made even more difficult because of the emotion that’s associated with it.
One of the main decisions people make with their estate plan is whether they should pass along their assets before or after death. The first pro to gifting while you’re alive is that you’ll be able to watch your assets be utilized. So much joy can be found in giving and having the chance to watch your children or grandchildren enjoy your gifts might be something that you want to experience. That’s also a decision that doesn’t account for any tax planning, but if that’s what’s important to you, then taxes won’t factor in.
But for a lot of people, that decision comes down to making sure your loved ones can keep as much as possible when you pass it on. The primary tax that many people are likely to face is the income tax that will be paid by heirs when they inherit IRA or 401(k) money. That money might not be subject to a federal estate tax but it will be hit with income taxes. And there is no avoiding that tax because if you pull the money out to gift it to your children, you’ll be paying the taxes on those withdrawals. Now it’s possible that you’re at a lower rate than your child so you might be able to save a little there.
A couple of the other considerations we’ll discuss on the show include the step-up cost basis that can benefit heirs after death and the benefits to setting up an irrevocable trust to gain more control.
If you’re in charge of assets for a loved one, you certainly want to make sure you don’t not deprive them of what they need. Those assets can be moved out of the estate and still made available should your loved ones need them. In the meantime, you might be able to minimize some of the estate taxes moving forward. Regardless of what you decide, make sure you have an estate plan and that it’s current.
Listen to the entire episode or click on the timestamps below to hop around to different topics.
[0:56] – Conflict in Ukraine
[2:08] – The article we’re referencing
[3:29] – Estate taxes
[4:22] – Giving assets away before death
[5:52] – Pros to giving away assets now
[7:56] – Step up cost basis
[9:38] – Irrevocable trust
[10:51] – The biggest issue in the article
[11:50] – Final thoughts
The Full Picture:
“If you are in charge of assets for a loved one, especially your parents, you certainly want to make sure that you do not deprive them of what you need. However, there is a way to have your cake and eat it to.”
– Dan Cuprill
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