5 End Of Life Financial Planning Pointers

by | May 3, 2024 | Videos

End Of Life Financial Planning

Key Takeaways:
1.   If someone is married and they pass away, this is the last year they can file a joint tax return, which may affect decisions on accelerating income for the surviving spouse.

2.  Selling an asset at the last moment or near the end is almost always a bad decision; try to avoid this.

3.  One of the most important tax benefits is a stepped up cost basis, which resets the cost basis of an asset to its value at the decedent’s death, potentially washing away large unrealized capital gains.

4.  When making gifts of appreciated securities, be mindful that you are also passing along the original cost basis, which could result in a significant tax bill for the recipient when they sell the asset.

5.  If you own an asset jointly, only your half gets the stepped up cost basis upon your death, not the entire asset, unless in a community property state.

End Of Life Financial Planning – Links

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End Of Life Financial Planning – Transcript

Sometimes people make financial mistakes on their deathbed; don’t let this happen to you.

Over the years, we’ve seen people lose their composure when they’re about to pass away, or worse, we’ve seen family members totally panic before a family member passes away. Please don’t let this happen to you. A little bit of planning and care can really help you out.

With that in mind, we’ve got five pointers that we want to pass along to you. There are many more, but we feel like this is worth talking about.

End Of Life Financial Planning – Point One
First, if someone is married and they pass away, this is the last year that they’re going to be able to file a joint tax return. This may be important to some folks because you may want to consider accelerating income into this year for the surviving spouse.

The reason why we say that is because it’s the last year they’re going to file a joint tax return, and their income tax situation next year is going to be completely different because now they’re going to be a single filer. So it is something that you do need to consider.

End Of Life Financial Planning – Point Two
Second, selling an asset at the last moment or near the end is almost always a bad decision. Please, try to avoid this.

We have all met people who said that they would never do this, but it happens. People do it. They’re just not thinking clearly.

People call up and they say, “I need money for my funeral.”
“I need money because – have you seen the hospital bills? They’re out of control,” or “we don’t have any cash at home.”

Someone called up in April because they said, “I didn’t set any money aside for my taxes.”

We can take care of these things. It may not be the right time for you to make decisions like this.

End Of Life Financial Planning – Point Three
The third point that we want to pass along is that one of the most important tax benefits that the IRS gives us is a stepped-up cost basis. And a lot of people are confused by this.

I’m going to give you an example of a situation that happened recently. A client had inherited money from an asset from their parents passing away twenty-five years ago. They never sold it.

It continued to grow, and increase in value every year. To the point where it became a very large portion of their investable net worth. And it really was not suitable, really not appropriate. It just didn’t fit, but you know, they couldn’t sell it because they were just going to pay all these taxes. They just didn’t want to do that.

And so one of the things they brought up with us was the idea “maybe we should be gifting shares” to other family members?

What we pointed out to them is when you do make a gift of appreciated securities like that, you’re passing along something as well. It’s a tax bill.

Because they are going to maintain the same cost basis that you had all along. And so you really need to consider if it’s an asset that you want to move on from or just let it pass through your estate.

Because once an asset enters into your estate, the surviving family members will benefit, so to speak, from a stepped-up cost basis. Their cost basis now becomes the value of the shares on the day that the decedent passes away. That’s really important because you may be talking about some unrealized capital gains — which could be a very large amount of money that now gets washed away.

End Of Life Financial Planning – Point Four
The fourth point kind of ties in with the third point when you’re making gifts to people.

Just be mindful if you’re giving an individual “appreciated securities,” something that has gone up in value, you’re also giving them the same cost basis you acquired the asset at.

I don’t know if that’s something that you really have in mind.

You are now giving them a gift with a big string attached to it.
They’re going to have to pay capital gains when they decide to move on from that asset.

One of the things that we like to talk about with clients is if you have appreciated securities, AND you want to make gifts, you should think about making a gift of some kind of appreciated security to a charity to an organization.

They’re not going to have to worry about paying taxes on the gain – if they’re a tax-exempt organization.

On the flip side, you may want to think about just giving cash to individuals, to people. You’re not going to have any kind of capital gains. Well, the recipient isn’t going to have to pay capital gains taxes. And when a recipient gets a gift, there are no income taxes for them to pay.

You need to be mindful when you’re deciding on gifts and moving assets out of your name. It’s very important and overlooked.

End Of Life Financial Planning – Point Five
The fifth point also ties in with the stepped-up cost basis; we talk about this a lot. But, I think it sometimes gets confused.

If you own an asset jointly with someone else, say your spouse (or really anybody), when you pass away, your half of the asset gets the stepped-up cost basis. Not the whole thing.

Now if you live in a community property state, different set of circumstances for you.

But it’s important to know that when you pass away, what you own gets stepped up in value, not the entire thing. So it’s, again, something to be mindful of.

We hope that you’re never in a situation where you have to make decisions or even worry about these kinds of problems towards the end of life; you need to get these things in order before that day ever arrives.

That’s the message for episode three seventy-seven.
Thanks, as always, for tuning in.

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