Guide to Preserving Yours or a Loved Ones Legacy, Ep #87

Nobody likes to talk about the two certainties of life: death and taxes. So much so that we delay important decisions on how to deal with our assets for our heirs. On this episode, Cameron Hendricks and Grayson Blazek join in to discuss specifics on how to handle accounts and property, filing taxes and how to better prepare for passing on your estate to your loved ones. Find out how to handle all of this now to save your loved ones added stress during a difficult time.

Ensure that your loved ones are prepared to understand your financial life

One of the greatest financial gifts you can leave behind to your heirs is to have an organized inventory of your financial life and one that can smoothly transition on to your beneficiaries. For retirement accounts ensure, that beneficiaries have been selected as these accounts pass outside of your Last Will & Testament. For non-retirement assets make sure the titling of the assets matches your desire for distribution. For example electing accounts as jointly owned or payable/transfer on death (POD/TOD) allows for ease of transition without having to go through the probate process.

This financial inventory is extremely beneficial to the executor of your estate as they navigate estate distribution as well as preparing final tax returns. However; in a time of emotional turmoil, the executor will want to lean on their professional relationships – CFP®, CPA, and Attorney – to assist in navigating this financial process.

How to prepare taxes for the deceased

There are potentially up to four tax returns to prepare for the deceased taxpayer. The final Form 1040 (income tax return), Form 1041 (estate income tax return), Form 706 (estate tax return) and Form 709 (gift tax return). Not all deceased individuals will need to file all these returns as potentially only one or two would apply to that individuals’ finances. If you are the surviving spouse of the deceased individual, you can file married filing jointly for the final Form 1040 as long as you don’t remarry within the year of death.

What are some common financial questions people ask about death?

What is going to be taxed when I did? – We hear many clients anticipate that all assets will be taxable to them upon receipt as a beneficiary which is untrue. Life insurance for example is received tax-free. Retirement accounts such as 401ks or IRAs are only taxed upon withdrawal from the account – so if withdrawing as a lump sum upon receipt then that will be taxable, however you can elect to “stretch” the withdrawals out subject to life expectancy and therefore withdrawal a smaller amount each year which would be taxable. Also, many assets including the house and brokerage account actually receive a “step-up” in basis at death. Therefore the beneficiary could elect to sell those assets shortly after death to minimize capital gains and therefore tax due.

What is the default estate plan?

The default estate plan is the State/Courts will decide not only who will receive your assets, but also who will be the guardian of your minor children. By having your Will established, beneficiaries in place, and correct account titling you can make sure you have the final say on how your financial legacy will be handled.

Outline of This Episode

[2:47] Ensure that your loved ones are prepared to understand your financial life
[7:17] What kind of income tax return will you need?
[18:28] The estate income tax return
[21:48] How to handle the 709
[26:58] What are the common questions people ask?