Back to Insights >

May 13, 2019

DO YOU KNOW WHAT WILL HAPPEN TO ALL YOUR BELONGINGS WHEN YOU PASS AWAY?

Having a will is great and certainly recommended but it is only the tip of the iceberg in ensuring your last wishes on this earth are carried out. In fact, if a will is the only documentation you have for instructing how and to whom your possessions should be passed on, there’s a good chance that your legacy may not be fulfilled quite as easily or successfully as you had intended.

In our line of work, we frequently come across a bit of confusion regarding how the whole inheritance process plays out. One common misconception is that your heirs will have to pay inheritance taxes on any assets you pass on to them. However, for a large percentage of the population, this is not actually true. There are only 6 states that assess an inheritance tax. What is more core common is the estate tax which is deducted out of the deceased person’s assets (i.e. their estate) prior to assets passing on to the beneficiaries. In 2019, Federal taxes are only assessed on estates greater than $11.4 million for single taxpayers, double that ($22.8M) for married couples.1

Some states also assess an estate tax although their limits are typically much lower than the federal limits. For instance, where I reside in Connecticut, taxes will be owed on estates greater than $3.6 million. New York assesses taxes on estates greater than $5.74 million whereas North Carolina and Ohio currently do not assess an estate tax at all. So it is important to do some research or work with estate planning attorney to determine possible tax consequences for your particular circumstances and how you might be able to mitigate them.

If the total value of your estate is less than the state and federal limits, there are some simple steps you can take to ensure your assets pass on to the intended beneficiary in a timely and cost-effective manner. In most cases, you will want to “title” assets or keep them in accounts that avoid probate court. When probate court is required, it adds to the administration and cost of transferring your assets (probate fees are typically a small percentage of the total value of the probatable assets). The probate process could take 6 to 12 months and possibly longer thereby creating a long delay in transferring the assets to the intended heirs. Probated estates are also a public record thus eliminating any privacy surrounding your estate which may not be desirable. Generally speaking, accounts that allow you to designate a beneficiary will typically bypass the probate process. It is important to periodically review beneficiary designations to make sure they are up-to-date, especially if you have recently experienced a major life event such as a birth, death, marriage or divorce.

All retirement accounts allow you to designate a beneficiary. These accounts include Individual retirement accounts (IRA), Roth IRAs and Employer-provided retirement accounts (401(k), 403(b), 457, SEP IRA, Simple IRA, etc.). As long as there is a beneficiary on file with the financial institution where the accounts are held, these assets will avoid probate.

Joint accounts also bypass probate by either allowing the assets to pass directly to the other owner(s) in the case of Joint Account with Rights of Survivorship or to a designated beneficiary for Joint accounts Tenants in Common. Beneficiaries can also be designated on individual brokerage accounts via the Non-Probate Transfer on Death (TOD) registration. Bank accounts allow for a similar registration via the Payable on Death (POD) registration. These registrations are very simple and typically free of charge to set up. Just ask your bank representative or financial advisor for assistance.

Trusts are another great way to ensure your money and prized possessions pass on to your intended beneficiary and also bypass probate. There are many types of trusts with different purposes, the details of which are beyond the scope of this article. Suffice to say, they can accomplish a variety of goals and provide added protections both during your life and/or after you have passed away. They are especially useful for households with assets in excess of the state and federal estate tax limits. Trusts are not quite as simple to establish as the other types of account designations mentioned and will entail the services of an estate planning attorney to draft the legal document.

Estate planning is not just for the ultra-wealthy. If you own anything of value, whether it be monetary or merely sentimental, you have an estate and therefore you should also have a plan. While the steps mentioned in this article will assist in ensuring your assets pass efficiently to the intended beneficiary, it still may not be enough. Depending on what you own and your intentions for those items will determine the level of complexity of your estate plan and the best actions to take to successfully fulfill your last wishes. However, there are some simple steps you can take to get the process started. If you are unsure where to begin, a simple conversation with a financial planner or estate planning attorney is a great place to start.

Footnotes:

  1. The state and federal estate tax and limits represent the limits for tax year 2019 and are subject to increases due to adjustments for inflation. The Federal estate tax limits are scheduled to expire or “sunset” in the year 2026 and revert back to the limits in place in 2017 unless further legislative action is taken to modify or extend them. State legislatures also have the ability to modify tax limits at any time.

___

Consult your financial professional before making any investment decision. These are the views of TrinityPoint Wealth, LLC, and should not be construed as investment advice. TrinityPoint Wealth does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.