Articles Tagged with Heirs

When parents have a home that they would like to one day pass to their children, they may worry about the logistics of this process. It is safe to say that creating an estate plan is the best way to ensure children will one way receive the assets and property that the parents wish to give them. However, within estate planning, there are multiple ways to do this—whether including it in a will for the children to receive upon the individual’s passing or gifting the funds from selling the property. Below are various options on how to pass property onto children—along with the various legal and tax implications of each choice.

Giving a House to Heirs in a Will

The most common way that individuals will leave property to family, especially children, is to bequeath the assets in a will. In doing this, the parents would write in the will that the children are to be given the house after the death of the last parent. One benefit of including property, like a house, in the will is that children will be given the property on a stepped-up basis. This means the property’s value is adjusted to its fair market value and reduces the capital gains tax owed by the beneficiary. However, the beneficiary may still be liable for estate taxes, unlike if the property is gifted in a trust.

Gifting the Property to Children in a Trust

Some parents would rather be able to give their children more money, rather than property after they pass away. The best way to do this is to create a revocable trust rather than leaving the property to the children in the will. In this case, after the parents die, the property is sold, and the funds from the sale are given to the children. For example, the parents would create a revocable trust and name a trustee. Once the parents passed away, the trustee would then sell the property and then the funds from the sale would be given to the listed beneficiaries.

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Finger reminderA state government has the legal right to claim the property of a person who has passed away and has no heirs or beneficiaries. Here's the problem: almost all state governments today are experiencing significant shortfalls in revenues. As a result, some states have become a little too eager and too aggressive about claiming property through escheatment.

What often happens is that an account holder has not stayed in contact with a brokerage or financial institute for a long time. The financial institute then reports the assets in an account as unclaimed property. Rather than making any effort to locate the person who owns the account, the government claims the property as its own. This can create issues for people who have long term investments as part of their retirement and estate plans.

Recently, Investopedia listed how you can avoid this happening to your stock accounts in "4 Ways to Avoid Escheatment of a Stock Account."

Signing documentThere was a time when irrevocable bypass trusts were highly favored by estate planning attorneys as one of the best estate planning methods for married couples. It worked like this: one spouse would fund the trust with an amount that was just under the estate tax exemption. At the time that the funding spouse passed away, funds in the trust were available for the heirs, and the balance of the estate was inherited by the surviving spouse.

Consequently, this approach lowered the size of the surviving spouse's eventual estate and lessened the estate tax burden for the married couple. However, as Kiplinger's Retirement Report points out in "Old Trusts Create Tax Issues for Heirs," estate tax laws have changed significantly since the time when many of these trusts were created.

The estate tax exemption is far higher than it used to be, and spousal portability now allows a married couple to double its estate tax exemption.

Calla lilly flowerWhen Christie’s auctioned off Edgar Degas’s “Danseuses” for nearly $11 million in 2009, the catalog noted that the masterpiece was being sold as part of a restitution agreement with the “heirs of Ludwig and Margret Kainer,” German Jews whose vast art collection was seized by the Nazis in the years leading up to World War II. But now a dozen relatives of the Kainers are stepping forward to object.

If valuable art is stolen, but then recovered after the original owner passed away, who gets to claim it? And how long should the person or business who recovered the art look for the rightful heirs?

When the Nazis rose to power in Germany, the wealthy Jewish couple Ludwig and Margaret Kainer fled to France. They left behind a valuable art collection that included original Monets and Degas amongst other pieces. All of their valuables were confiscated by the Nazis. After the war and before any of that property could be recovered, the Kainers passed away. They had no children. The art ended up in the trust of Swiss Banks, which at least nominally transferred them to a foundation that had previously been set up by Mrs. Kainer's father.

Money giftIs inherited wealth making a comeback?

Is leaving an inheritance a good or bad idea? Well, it all depends on who you ask. For example, a recently published book by French economist Thomas Piketty, “Capital in the Twenty-First Century,” argues that estates are getting larger and eventually most of the money in the world will be tied up in huge estates. The argument is that this is bad. Why? Because the wealthiest people will have done nothing to earn the wealth themselves and much of the money will never be spent. Consequently, the money will just accumulate in estates and remain outside the greater economy.

Not all economists see this as a necessarily bad thing. In a recent article in The New York Times titled “How Inherited Wealth Helps the Economy, Harvard Professor N. Gregory Mankiw explains how those who save their money and leave an estate to their heirs actually induce a redistribution of wealth from the owners of capital to workers. He states, “Because capital is subject to diminishing returns, an increase in its supply causes each unit of capital to earn less. And because increased capital raises labor productivity, workers enjoy higher wages.”

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