Death, like taxes, is certain: Nail down your household's must-know details
Q: I just heard that men have shorter life expectancies because of health and lifestyle, and many won’t go to the doctor. Unfortunately, my guy takes care of all that is financial in our house. What do you suggest?
A: Use that data as a friendly reminder that we need to know what’s going on. Back in the olden days, we called this cross-training.
Where are the passwords stored? Do you know all the sign-on and secret question answers? Use secret answers that don’t change over time, like your first car or first pet.
Create a net worth statement that shows where all assets are custodied. Review how the accounts are titled. If there’s a safe deposit box, note who has access.
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Are there any savings bonds, loose stock certificates or dividend reinvestment plan statements?
What about cash, coins, gold, silver or crypto? Where is it and how can it be accessed? Research Matthew Mellon’s sudden death and what happened to his cryptocurrency. Spoiler alert: It’s not a happy story for his beneficiaries.
Review insurance products. Check and update the beneficiary designations. Life insurance products and annuity contracts have cost basis, and annuity gains are taxed as ordinary income to everyone, including beneficiaries.
Life insurance proceeds are usually not taxable to beneficiaries, but the interest that is accumulated between the death and the disbursement will be taxable.
When there is incapacitation, the cost of stocks and funds determine the tax on the sale, with death there may be a step-up in basis.
Businesses need succession plans, and payments to heirs often include key person insurance. The proceeds of the policy buy out the owner and other top executives.
A primary residence that is inherited gets a step-up in basis, so there won’t be a tax to the beneficiary.
Inherited property step-up in basis refers to the process of adjusting the value to the fair market value on the date of death. This IRS tax rule may reduce or eliminate tax on an asset at the owner’s death.
When a primary residence is sold, a single individual pays tax on gains over $250,000; married couples may have gains of $500,000 without paying any tax. Cost matters, and capital improvements may be added to the original price paid. Surviving spouses get the full $500,000 exclusion if they sell the house within two years of the spouse’s death.
When rental property is inherited, the property basis is stepped-up. Heirs don’t pay any depreciation recapture. If an heir decides to keep the property, it may be depreciated again.
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Selling the inherited rental property later may cause a capital gain tax if it appreciates after it is inherited. Long-term capital gains are one year and a day, and short-term capital gains are anything less than a year and taxed as ordinary income.
If you decide to move into an inherited rental property, homestead it and make it your primary residence. Then you can have tax-free gains of $250,000 or $500,000.
Individuals named as beneficiaries on an IRA supersede heirs named in other estate-planning documents. Consolidate inactive 401(k)-type retirement accounts into an IRA rollover and designate beneficiaries very carefully. Track any cost basis there may be. Distributions get complicated; consolidate and simplify.
Congress passed a bill at the end of 2022 that changed the required minimum distribution (RMD) age start dates. For those who reach age 72 between Jan. 1, 2023, and Jan. 1, 2024, RMDs are required to begin at age 73. And for those who reach age 74 after Jan. 1, 2032, the RMD age is moved back to age 75.
Let’s not forget about our children and furry friends; designate guardianship of children and pets to your choice of a friend or family member who agrees to accept responsibility.
When you and your guy get organized and simplify your life, consider writing a letter to your loved ones asking for what you want your memorial service to include (favorite music, songs, readings, or party favors). If you have a favorite charity, ask for memorial contributions to go there. This is a good time for both of you to share your wishes. Just like taxes, death is certain.
Mary Baldwin, CFP®, is a fee-only financial planner at Buckingham Strategic Wealth in Indian Harbour Beach. Contact her at 321-428-4555 or mbaldwin@buckinghamgroup.com.
For informational and educational purposes only. Individuals should speak with a qualified financial professional based on their own circumstances to determine if the above is appropriate. The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®
This article originally appeared on Florida Today: Getting financial affairs in order should be on your must-do list
