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How To Make Things Easy For Your Heirs

A man dies, leaving a few properties to his children. One is a vacant, vandalized property in a bad neighborhood. Even house flippers don't want it - it would be impossible to sell without sinking a lot of money into repairs. Plus, there are unpaid taxes on it that amount to $7,500.

The heir, it turns out, doesn't want it either. All he has received is a liability.

Such bequeaths are just one mistake people make when estate planning. The failure to liquidate tangible assets - even if the asset is in good condition - can make an estate difficult to administer and pass on at full value. What is meant as a gesture of kindness ends up being a millstone around one's neck.

What to Consider

Some assets are easier than others to pass on. Below is a sampling of them:

  • Liquid assets. A liquid asset is cash or something that can be quickly converted to cash with little impact on the value. For examples, investments - stocks, bonds, money market funds, mutual funds - are liquid assets and can be turned into cash relatively easily.
  • Are you looking to make things easy for your heirs? Passing on liquid assets is the surest way to do so. They are the easiest type of asset to manage in an estate. Liquidate (sell) whatever tangible assets you can, and the cash you pass on will leave your heirs without any complicated liabilities.
  • Sentimental Assets. Understandably, you don't want to sell your ancestor's silver. Dollars are nice, but they don't retain sentimental value, which can be important to your children. Some assets have been in the family for generations. If you want to leave a sentimental asset - perhaps a family heirloom - this is a personal decision that requires forethought.
  • It is best - it is crucial -- to discuss sentimental assets with your intended heirs. Arguments may erupt after your passing if you have not made it clear who gets the candlesticks, engagement ring, and china. Such assets may be worth more than their dollar value, but are rarely worth any complications that might ensue.
  • Tax Planning. Generally, inheritances are not considered income and are not subject to tax. But if an IRA or 401(K) is inherited, one may need to pay taxes upon withdrawal. Tax law is inherently complex, and it's best not to make assumptions about potential liability.

If you wish to lessen the tax burden to your heirs, consult an attorney experienced in estate planning and tax law.

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