The first part of this article dealt with tips to keep in mind when helping an aging loved one with estate planning matters. This included watching for waning mental capacity, exercising any necessary swap powers, reviewing trust principal distribution standards, adjusting the timing of any charitable gifts, amending family limited partnerships, and providing for any shifts in the trust situs. This section of the article discusses tips to keep in mind after your loved one has passed in order to derive the most value possible for the heirs.
Tips for After the Passing
In addition to looking out for an estate before a loved one passes, you should also keep in mind what is important after they pass away. There are many different opportunities available to ensure that the heirs of the estate also get as much value as possible that their loved one wished to pass on. Issues that can arise after the passing of a loved one can include:
Traditionally, it has been commonplace for a family member to take executor commissions. The commission provided a valuable estate tax deduction for estates taxed at higher rates. However, with the exemption level eliminating estate taxes for most people, paying executor commissions may generate a significant income tax for the executor without reducing any estate tax. Once reviewed, if it does not make sense to take a commission, the executor can formally waive receiving any money for the responsibility.
Although it is constantly warned against, many people do not revise their will for years. Some older estate plans include funding a credit shelter trust on the first spouse’s death, but many families do not want to do it if the estate tax benefit no longer exists. Some even go so far as to attempt to distribute the assets outright to the named beneficiaries and skip the trust. However, you need to legally address the termination or nonuse of the trust before making distributions in order to avoid legal ramifications.
Funding Bequests or Appreciated Assets
If your loved one attached a dollar figure in a bequeathing that is met using appreciated assets, a taxable gain can be triggered at distribution. As a result, you should be careful when deciding what assets should be sold in order to fund specific bequests.
While many wills and estate plans provide for the equal distribution of assets to heirs, sometimes the beneficiaries would much prefer to receive non-pro rata distributions of various assets in the estate, as long as they are of equivalent value. For example, one heir may want to inherit the family home, while other heirs receive their portion in stocks and financial assets. However, you should be aware that unless the will or state law permits non-pro-rata distributions, the IRS may view this as the equivalent of a sale and an exchange of the various assets, so be sure to review the documents and law before executing an estate in this manner.