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Prepare Now To Help Your Heirs


Good news: you may outlive your investments. And if you do, whatever’s left will go to your heirs. While that may be a simple process if you leave a spouse, it could get tricky for your children or other heirs.

Failing to prepare “can completely squander your legacy,” says Matthew E. Rappaport of the Sahn Ward Coschignano law firm in Uniondale, New York, citing excess taxes or irresponsible spending by heirs.

“In the state of New York, a couple with a net worth of $10 million could pay roughly $1 million in unnecessary New York state estate taxes from failing to plan properly,” he says.

Most investors know they should address big matters like having a will, estate plan and power of attorney. But some smaller, simpler tasks are important, too, like preparing a list of your financial accounts for heirs.

“Several financial risks can arise from not planning properly,” says Rhonda A. Miller, partner at Yates Campbell & Hoeg, a trusts and estates law firm in Fairfax, Virginia. “For one, you have no way of ensuring your assets will be passed properly to your beneficiaries. Your loved ones may end up fighting over your assets, assets may end up in limbo or become state property. In addition, your assets will end up in probate, which can be incredibly expensive, as fees for attorneys and executors can cost tens of thousands of dollars.”

Delays from poor organization can also prevent heirs from managing their inherited investments, says Christina Dell’Aquila, at AAFMAA Wealth Management & Trust in Raleigh, North Carolina.

One key step is to deal with your bank, brokerage and fund companies.

“Each of these financial institutions should know who your estate planning attorney is and what your estate plan looks like,” Rappaport says. “What does your will say? If you have any trusts, what do those say?”

Each financial account should list a beneficiary or have a transfer-on-death designation that matches provisions in your will, he says. Experts note this holds for people of modest means as well: Make sure your individual retirement accounts and 401(k)s will end up in the right hands even if you don’t feel you need an estate attorney or accountant.

Catherine Taylor, principal in the trust and estate practice at the Citrin Cooperman accounting firm in New York, advises investors to convert old-fashioned paper stock certificates to electronic “book” form, a task that can be done by a broker or the company that issued the shares.

“While actual certificates can be interesting to have, they can cause aggravation for your heirs,” she says. “Bookshares are easy for heirs or the executor to collect.”

It’s not something fun to think about, but there are some steps to help those left behind.

After dealing with financial services firms, make sure your heirs have access to the information they’ll need to sort out your affairs. You don’t necessarily have to tell every heir every detail of your plans, but inform your executor at least.

Also, prepare that list of financial accounts, make sure key people know where it is, and keep recent account statements in the file so that heirs know what’s to be divvied up. The list should include account numbers and contact information for the firms. That way, the people handling your estate know whom to tell about your death.

Because firms holding your investments know how to pass assets on to the designated heirs, it’s not necessary to hand out logon information unless you’re not getting paper copies of account statements.

Some investors feel they can make the pass-off easier by naming their children co-owners of assets like stocks and mutual funds, but that can be a big mistake, Miller says.

“When children are added to accounts or assets – especially stock shares – these assets are considered gifts,” she says, noting that this will increase the tax bite when the shares are eventually sold.

“Stocks transferred prior to death will be valued at the original purchase price” for capital gains calculations, she says. “However, stocks transferred after death are valued at the price on the day of the original owner’s passing.”

Gary R. Botwinick, partner at the Northern New Jersey law firm of Einhorn Harris, says heirs also need access to “digital property” like Facebook accounts, frequent-flyer accounts or storage services that have family photos and other valuable items.

Finally, remember that when you’re done you’re not really done. Plans need to be updated as your wishes or tax laws change, Miller says.

“It is also important to change your estate plan if you have a major life event [such as] marriage, birth or death,” Miller says. “If you remarry, not doing planning may allow your new spouse to make a claim on your separate property, so children from a previous marriage may not be entitled to as many assets. Conversely, you may have enjoyed a long second marriage, but if your estate plan isn’t updated, your new spouse may not be sole beneficiary.”

The steps mentioned here are the minimum, and experts say investors with substantial assets or complex issues, like the need to provide for disabled heirs, are wise to go further by consulting a tax expert and estate lawyer.

Source: U.S. News