There are many factors to consider when creating a comprehensive estate plan. Forgetting or leaving out certain assets could potentially create time-consuming delays, financial complications, and family disputes. In some cases, dormant, forgotten, and unclaimed assets can be turned over to the state as unclaimed property, a process called escheatment, and be lost to your beneficiaries. There are several elements you want to account for, should they be relevant to you and your beneficiaries. These include:
Integrating your business into your estate plan
If you are a business owner, incorporating your business into your estate plan can help preserve its legacy or ensure the transition has as few obstacles as possible. There are several factors to consider:
- Succession planning – Designate who will take over the business in the event of your death or incapacity. This may include transferring it over to family, selling it to an outside buyer, or your employees.
- Business structure – Ensure your business is properly structured to align with your estate planning goals.
- Wills and trusts – Include your business in the creation of your will or in a trust to help reduce estate taxes and allow for a smoother transition while potentially helping to maintain privacy and safeguarding assets.
- Tax liabilities – Consider any tax implications that may impact your business after you die.
- Buy and sell agreements – If you have partners in your business, a buy and sell agreement may be essential for managing the terms in the case of a partner’s death, incapacitation, or retirement.
Incorporating your real estate into your estate plan
In many cases, real estate may encompass a significant portion of your assets and require careful attention when creating an estate plan. Some crucial factors include:
- Taxes – Real estate may significantly increase the value of your estate and therefore impact the amount your beneficiaries receive without careful consideration of tax implications.
- Step-up in basis – Step-up in basis is a tax benefit that may be available when passing property to beneficiaries. It is a tax provision that resets the cost basis of an inherited asset to its fair market value on the date of the original owner’s death. Should they decide to sell it later, they may be able to reduce or bypass capital gains tax on the appreciation. They will only owe tax on any appreciation after the inheritance date.
- Will vs. trusts – A will can specify who inherits your property; however, it generally does not avoid probate (the court-ordered process of handling a deceased person’s estate, which can be time-consuming and costly). A revocable living trust, on the other hand, allows you to retain control of the property during your lifetime, and if properly structured and funded, generally will bypass probate court.
- Limited liability companies (LLCs) – If you own a rental property or have a property with multiple owners, an LLC can give you liability protection and reduce management complications.
- Joint ownership – Joint Tenancy with Right of Survivorship or Tenancy by the Entirety can help with automatic transfer of property when you die, and in specific circumstances, can bypass probate.
- Transfer on Death Deeds (TODs) – TODs, which aren’t available in all states, allow for the transfer of real estate to a designated heir upon your death, bypassing probate.
- Owning real estate in multiple states – Many individuals own real estate in multiple states. If you have a will, probate may occur in the states where the homes are located. No state has the authority to probate real estate in a different state. Without proper planning, beneficiaries could experience unexpected tax consequences and delays. Many turn to a trust as you are permitted to include real estate from multiple states in the same trust.
Incorporating your vehicles into your estate plan
Adequately planning for the transition of any vehicle you own to your beneficiaries can help for a smoother transition. Here are some factors to consider:
- Inventory ownership and liabilities
- A list of inventory – Make a list of all the vehicles you own (cars, trucks, motorcycles, boats, RVs), and include the make, model, year, and VIN number.
- Liabilities and debts – Have documents available of any outstanding loans or lease agreements.
- Location of the titles – Clearly communicate the locations of the titles for each vehicle to prove ownership.
- Transferring ownership to beneficiaries
- Living trust – Adding vehicles to a revocable living trust allows the trustee to manage and distribute the vehicles in accordance to your wishes and the terms of your trust while bypassing probate. This can help to safeguard privacy and certain control over your assets.
- Lifetime gifting – You may consider making gifts to loved ones during your lifetime, which may fall within the annual gift tax exclusions.
- Transfer-on-Death Deeds (TODs) – Many states allow you to name a beneficiary on the vehicle’s title to take ownership when you die. This is another strategy for bypassing probate.
- Joint Tenancy with Right of Survivorship – A strategy you can use if you want a co-owner, such as a spouse, to automatically inherit the vehicle upon your passing while bypassing probate.
Important Disclosures:
Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
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