June 28, 2013

I want to share a few tips for getting the most out of your legacy planning. These simple tips can help ensure you get the most out of your assets and can prevent leaving your loved ones with a complicated mess to deal with after you're gone.

  1. Update your beneficiary designations. Making sure that you have beneficiaries on all of your investment accounts will do two things. For one, your assets will go where you want them to, and will not have to pass through probate. The probate process can take months, but if you list beneficiaries, those assets can be distributed right away. Lastly, listing beneficiaries on tax-deferred accounts (IRA, 401k, etc.) will allow your beneficiaries to transfer the assets into a retirement account of their own. This allows them to stretch down the tax liability of the inheritance, resulting in less money lost to the IRS.
  2. Take advantage of stepped-up cost basis. Remember that your beneficiaries will receive a stepped-up cost basis on your taxable investments. All else being equal, you should avoid selling investments with large imbedded gains. If you don't need the money now, and there isn't some other reason to sell the investment, let those assets pass to your heirs. They will receive the assets with a value based on date-of-death, essentially receiving all of those gains free from capital gains tax.
  3. Earmark certain "buckets" for charitable giving. If you are planning on donating a portion of your net worth to charity, make sure you specify which assets will be donated. Most charitable organizations have a special tax status and do not pay taxes on donations they receive. You might want to bequest assets with the most tax liability to these organizations. For instance, if you gift assets from an IRA to charity they will pay no tax upon withdrawal, while those assets would be 100% taxable as income to a family member.

These are just a few of many things you can do to ensure a smooth transition. Please remember to speak with your financial advisor, tax professional,and lawyer for assistance with making these decisions.

Sam DiNorma

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).