Wade Law Blog

Strategies for preserving your family’s assets

Jan 07, 2016| BY: Wade Law Offices

While you might think that only those who are in possession of wealth need to consider estate planning, that is not the case. If you are single, your heirs need not concern themselves with estate taxes unless your assets exceed $5.45 million. Most people need to think about the more important topic of handling the step-up in basis on their assets that they inherit, and income taxes.

The step-up in basis pertains to the way in which assets, including investment property and second homes, are evaluated following the death of the testator, and the way in which taxes are assessed against traditional IRAs and 401(k)s inherited by a beneficiary who is not a spouse.

One strategy you can use to ensure that your assets remain in the family, and are left to the heirs of your choice is to have a will drafted by an estate planning attorney. In California, if you die without having made a will, the beneficiaries of your estate will be determined according to California law. However, there are some assets that are not distributed through a will. For example, some accounts, including life insurance policies and retirement funds, allow the owners to designate the beneficiaries. But if no beneficiary is named, the probate court will decide who will receive the funds in the accounts.

In California, you can keep your estate out of probate if you own real estate that is worth up to $50,000 or have no more than $150,000 in assets. In addition, you can have a will drafted such that it includes testamentary trust provisions that only take effect upon your death.

Furthermore, you can realize many tax advantages from setting up an irrevocable trust, which is a trust in which the assets are no longer owned by the testator. Instead, they are owned by the trust.

It is not required that a trust pay taxes on income derived from interest and dividends. Since trusts are taxed at a higher rate for individuals, it is recommended that people use the trust to pay expenses. For instance, if you were contemplating contributing to the down payment on a house for your child, it would be advisable to transfer funds from a trust instead of making a withdrawal from another account. In this way, the use of funds from a trust will result in income being taxed at the lower tax rate of the beneficiary rather than at the trust’s tax rate.

A living trust can help make certain that your assets are handled in accordance with your wishes while you are still living and in the event that you become incapacitated and unable to manage your assets. You can serve as the initial trustee or designate another individual to assume the responsibility of managing the trust. You can also designate a trustee to manage the trust if you are no longer able or willing to do so yourself. Upon your death, the trustee would assemble your assets, pay the debts, claims, and taxes, and disburse the assets per your instructions. If you have chosen to be the trustee of your living trust, and you are no longer capable of managing the trust, your successor trustee would handle the trust assets on your behalf.

Another wealth preservation strategy is to convert traditional IRAs to Roth IRAs, the distributions from which are tax-free. You may also wish to give your money to your heirs while you are still living. You can give a maximum of $14,000 annually without being subject to the gift tax. A similar method to lower the value of your estate is through charitable donations.

If you would like to learn more about estate planning strategies that will help keep your assets in the family, you should consult an estate planning attorney at the Wade Law Offices.

Asset Protection, Estate Planning, Succession Planning

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