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Which assets to leave to your family - and which to avoid

Thinking about what will happen with your assets when you pass away is unpleasant yet important. You don't want to leave your family with the unnecessary burden of deciding who gets what.

Likewise, you don't want to inadvertently make their lives harder by forcing them to deal with negative tax consequences and other issues.

According to Investopedia, financial experts identify three major factors to consider when deciding how assets should be distributed:

  • Tax planning
  • Liquidity
  • Sentiment

Tax Planning

It seems that no matter what we do, it's difficult to avoid thinking about taxes when it comes to financial management matters. You will want to work with an expert to help you understand assets that receive a "step-up in basis" upon your passing and those which don't.

A step-up in basis means that the applicable property receives a bump up in the cost basis of the asset to the current fair market value. This bump up in value can result in a lower tax burden for the beneficiary of the asset (i.e., your family).

Assets such as retirement accounts do NOT receive a step-up in basis. This means that the beneficiaries may be saddled with a large tax liability when they withdraw the funds from the inherited retirement account. If you are charitably inclined, these types of accounts may be better served in donating the account to the charitable organization of your choice.

Liquidity

Liquidity can be a major factor when the beneficiaries of your estate receive the inheritance you have provided. Items may need to be sold quickly to pay the balance of any estate taxes due or other financial obligations of the estate.

Assets that are highly liquid (such as stocks or bank accounts) can quickly be turned into cash, and consequently, make an excellent choices to leave to your family. Real estate, art and jewelry may not be as ideal, since the assets may have to be sold at a significant discount in order to be sold quickly.

Sentiment

You may have certain items with great sentimental value to your heirs, and therefore the financial consequences may take second place. Your family members want these items no matter whether it's financially advantageous to them or not.

Such assets may include family heirlooms, real property that has spent generations in the family, art objects that you have personally created and more.

Estate planning is an important part of providing for your family's future without leaving any unpleasant surprises. If you have any questions about what assets to include in your estate plan for your family, feel free to contact a skilled estate planning attorney for more information.

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