How Can I Make the Inheritance Process as Smooth as Possible for My Family?



Eight ways to make life easier for everyone involved

Conventional wisdom tells us that there are several steps you can take to prevent your estate from being a mess after you die. Have an estate plan, make sure your assets are properly titled, update your beneficiary designations and keep your documents in a safe place where the right people can find them. Unfortunately, many people fail to cover these basic items, and even fewer take additional steps to make the inheritance process as smooth as possible for family members and other beneficiaries.

In every stage of life, whether your estate is modest or sizeable, these eight steps can help simplify the process of administering your estate and make life easier for everyone involved.

1. Consolidate your accounts

When your estate is settled, one of the first tasks an executor or successor trustee is responsible for is gathering your assets. Typically, this involves consolidating your accounts. Whether you have two bank accounts or 12, your estate will likely have only one. The same is true for brokerage or investment accounts and may apply to retirement accounts as well.

The more accounts you have when you die, the longer it takes to gather them and the greater the chance funds will not be immediately available if needed. Having numerous accounts also makes it more difficult for your executor or trustee to manage your assets in an efficient manner. The easy answer to these concerns is to not maintain more accounts than you need during your lifetime.

2. Keep important documents together

Are your important documents mixed in with the holiday decorations in your garage? Are your second sets of house and car keys in the back of your sock drawer? Is your desk and filing cabinet a mess? Make it easy on your family and designate a safe, well-organized, easily discoverable place to store your important paperwork and physical items like keys.

Such documents include your will and trust. They also include statements (or at least a list of institution names and account numbers) for your bank and investment accounts, and proof of ownership for your other property interests (and whatever you may need to access them). The goal is to make it as easy as possible to determine what you own and take control of everything.

Rather than storing these items in your house, it’s often a good idea to open a safe deposit box, assuming you keep the key in a safe place that is easy for the right people to find.

3. Authorize access to digital assets

Keep in mind that your assets are not only physical but also digital. Make a list of all your online accounts and email addresses along with usernames and passwords, especially for any digital currencies like Bitcoin or Ether.

Consider using a “password manager” on your computer and cell phone. There are several programs that allow you to automatically and securely store passwords in a digital wallet maintained by an online service provider.

But allowing access to your digital assets requires more than just providing an executor or successor trustee with a list of accounts and passwords. Your estate planning documents generally should include provisions formally authorizing your fiduciaries to access and manage your digital assets upon death or incapacity. You also need to coordinate your estate planning document with any online password manager you may have set up with specific providers, like your email or social media accounts.

4. Don't leave small percentage gifts

Some people find it easier to leave each beneficiary a percentage of their estates rather than a specific dollar amount. It’s not uncommon to see people leaving the balance of their estates to a list of friends, family members and charities, each with a specific percentage.

The problem with this approach is that a lot needs to happen before those percentages can be paid out. Even if the amount is relatively small, your beneficiaries will need to wait until the administration process is fully complete before they receive their entire inheritance. In the meantime, the executor or successor trustee will need to keep them informed of everything happening in the administrative process, because every dollar spent and received ultimately impacts their gifts. This can place a heavy burden on your bequests.

As a general rule, if a bequest is going to be less than 20% of your estate, consider making it a dollar amount. You may need to update that dollar amount as circumstances change, but that’s much easier than the burden that would come with the gift by making it a percentage.

5. Consider collectibles carefully

There’s an old adage in estate planning that says nothing causes family strife like people’s “stuff.” That stuff can include sentimental items, priceless collectibles and even items you may view as worthless. Your plan for the distribution of tangible personal property (the technical term for “stuff”) does not need to be complex. But it should be well-thought-out.

Having a realistic sense of value, both financial and emotional, is essential. It is also critical to keep important documents such as purchase receipts, sale records, authentication and provenance documents, appraisals and insurance contracts. If certain items of value are left to specific individuals, make sure your wishes are expressed clearly in your will and trust documents.

If you plan to leave all items to your children and also want them to pass along certain items to other people inside or outside of your family, think carefully about how that process will work. Contact any charities, museums or other institutions to determine what items they’ll accept and how they will be used. Finally, for items that have significant financial value, make sure you consider the tax implications of your gifts.

You don’t need to fully embrace the practice of Swedish death cleaning (rigorously organizing your belongings before you die), but sorting out your “stuff” typically results in fewer headaches for your loved ones.

6. Plan for your pets

Legally, pets are also considered tangible personal property. But for many people, pets aren’t property— they’re members of the family.

If you feel that way about your pets, you should probably plan for them as well. Your will or revocable trust should specify who will receive your pets and those documents should also include a back-up plan to prepare for the possibility of someone’s ability or willingness to take your pet changing over time.

You may also want to leave a sum of money to the person who receives a pet and request the funds be used to take care of your pet. This request typically is not legally binding, so the recipient could theoretically use those funds for other purposes. But it makes the point clear. It’s also possible to establish a “pet trust” to hold funds dedicated specifically to animals. These trusts generally make the most sense for animals that are expensive to care for, such as horses, or if you have a particularly pampered puppy.

7. Donate your IRAs to charity

If you are planning to leave part of your estate to charity, use your traditional IRA. While charities can receive the IRA proceeds tax-free, distributions to an individual will be taxed as ordinary income at rates as high as 37%. And that’s on top of any estate tax that might be due. Ultimately, an individual who receives IRA assets may receive less than 50 cents on the dollar, while a charity will receive the entire amount.

Leaving your entire IRA to charity can also largely remove those assets from the estate administration process, which can become especially cumbersome when IRA proceeds are funneled through an estate or revocable trust.

8. Be smart about what and when to give

Gifting is great. It can have significant tax benefits if your estate is subject to estate tax when you die. More importantly, it can have a meaningful impact on the lives of your beneficiaries, and it allows you to see how your gifts are being used.

But gifting can also have a downside. From a tax perspective, a lifetime gift sacrifices the “step-up” of income tax basis at death. If your estate isn’t subject to estate tax when you die, this can be a big tax mistake. Beneficiaries who receive appreciated property during your lifetime will have to pay capital gains taxes when they sell that property. But capital gains taxes disappear if you pass along the property upon death.

If you have concerns about how a gift is used, irrevocable trusts can be very useful. They specify the purpose of your gift and establish parameters for how and when it should be used.

This analysis is provided for illustration and discussion purposes only and does not guarantee future results. Please speak to your Fiduciary Trust contact if you have questions or would like more information. This communication is intended solely to provide general information. The information and opinions stated are as of December 1, 2019, and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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