Tags: Financial | Stress | Loved | Ones | You | Die

Your Death Could Cost Your Loved One

Your Death Could Cost Your Loved One
Steve Woods | Dreamstime.com

By    |   Thursday, 06 April 2017 03:00 PM

It’s as certain as… well you know how the rest of the clich√© goes. But if you don’t plan ahead, your death could lead to plenty of taxes being shelled out by those collecting what you’ve left behind.

Eventually, life comes to an end. And too often when that day arrives, people have failed to put their financial houses in order – which could prove costly for their survivors.

Most people know their death will be an emotional blow to their loved ones, but it’s likely to be a financial blow as well.

There are at least three costly mistakes people make when it comes to money and death:

  • Giving away stocks or other appreciating assets as gifts.
  • Keeping all assets under joint ownership.
  • Failing to plan at all.

Those who are getting on in life often like to give some of their wealth to their children or grandchildren as gifts before they die. But that can be a mistake when it comes to stocks. If you sell a stock, you would have to pay a capital gains tax on the money the stock earned.

If you gave someone that stock as a gift, they would get smacked with that same tax burden.

Leave an heir the stock as an inheritance, though, and something called stepped-up cost basis allows them to avoid that big tax burden. With stepped-up cost basis, the stock gets a fresh start and the person only has to pay capital gains tax on what it earns after they inherit it.

You can also save your spouse on taxes upon your death by willing them stocks and investment real estate.

When you’re married, it’s natural to put everything in both your names. But it’s not the prudent approach when it comes to appreciating assets. That’s because when one of you dies, the surviving spouse loses half of the stepped-up cost basis benefit.

Take $1 million worth of stock that was purchased for $100,000. If it was under joint ownership, when you died the $1 million would be added to $100,000, then divided by two. The resulting $550,000 would be the new cost basis for the surviving spouse. If the spouse tried to sell it at the $1 million value, he or she would pay taxes on $450,000.

If the ownership hadn’t been in both names, the spouse would owe no taxes. Instead of joint ownership, you could title the account to read POD (Paid on Death) or TOD (Transfer on Death) or ITF (In Trust For), which allows the spouse to receive it without losing the stepped-up cost basis benefit.

It would be wise to recognize these scenarios and anything else of concern before it’s too late.

Too many people wait until death is knocking at their door before they start looking into what to do with their estate. However, tax laws won’t allow some last-minute switches you might want to make.

This is where a financial professional could come in handy. That person won’t bring the emotional baggage to the subject that you do. He or she can provide you with an objective look at the facts, pointing out what you should be doing and how to go about doing it.

Planning under duress and with a deadline isn’t the same as calmly considering your options, taking the time to truly understand them and then acting on them.

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Tony Perrone, author of I Didn’t Know I Could Do That: 9 Financial Strategies That Can Save or Make You Money (www.DropHelp.com), is president and founder of the Estate and Business Planning Group. As a financial professional, his focus is designing income-producing portfolios for retirement. For 16 years, Perrone was host of the popular radio talk show Now You Know on FM 96.5 News Talk WDBO in Orlando, which could be heard from Jacksonville to Tampa to Vero Beach.

Securities and Investment Advisory Services offered solely through Ameritas Investment Corp (AIC). Member FINRA/ SIPC. AIC and Estate and Business Planning Group are not affiliated. Additional products and services may be available through Anthony Perrone or Estate and Business Planning Group that are not offered through AIC.

Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.

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There are at least three costly mistakes people make when it comes to money and death.
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Thursday, 06 April 2017 03:00 PM
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