The truth is that as we get older, health challenges and unexpected events are more likely to occur. Therefore, I have provided below 15 important asset & debt, tax planning, insurance planning, and estate planning items you should review to help ensure you are prepared when the time comes. Asset & Debt Issues- Do you own taxable investments with a large unrealized gain, like company stock? If so, consider gifting them to the older spouse so that you receive a step-up in the basis at their death, if the death occurs more than one year after the date of the gift.
- If you have annuities or illiquid assets, do they need to be reviewed to understand options?
- Could there be any pensions and/or employer retirement benefits you could be forgetting? It may be worth confirming the survivorship on the policy and checking if any other benefits may be available such as a small death benefit.
- Will there be any expenses that require you to sell any investments?
Tax Planning- Will unreimbursed medical expenses be high? If so, consider doing a Roth IRA conversion to take full advantage of the medical expense deduction.
- Is there a capital loss carryforward on your tax return attributable to the older spouse? If so, consider selling an asset at a gain to offset the carryforward loss. Carryforward losses can be used on the final tax return but will be lost thereafter if in the deceased spouse’s name.
- Are there any unrealized tax losses in an account owned by the older spouse? If so, consider harvesting the unrealized losses or consider gifting the asset to the younger spouse to preserve the loss and avoid the step-down in basis.
Insurance Planning- Review your insurance policies. If you have any life insurance, long term care, or other insurance policies, it may be beneficial to review coverage amounts, how benefits are triggered, and any beneficiaries.
Estate Planning- Do the titles of your accounts need to be reviewed or updated? If you have a joint account with large unrealized gains, it may make sense to change the account title to an individual account in the older spouse’s name. Then if the older spouse passes first (which is likely) the surviving spouse will get a step up in basis.
- If you don’t want your taxable accounts to flow through your estate, consider making your individual brokerage accounts “Transfer on Death (TOD)” accounts so that they are automatically transferred to a named beneficiary. Then, upon your passing these assets could skip the probate process, but there could still be estate tax ramifications.
- Do your beneficiary designations need to be updated? Please let us know if you would like us to send you a list of the current beneficiaries on your retirement and/or TOD accounts for your review. You should also review the beneficiaries of your outside retirement accounts or TOD accounts and insurance policies.
- Review properties and investment accounts for probate purposes. If your properties or investment accounts are jointly owned, you may want to consider putting the asset in one spouse’s name. If the asset is jointly owned and one spouse passes, the other will immediately become owner of the entire asset and probate should not be an issue. But, if the asset has increased in value, we recommend you put the asset only in one spouse’s name (the older spouse as they will likely pass first) so that the surviving spouse can receive the step-up in basis.
- Review your estate planning documents. Specifically, review General Power of Attorney and Healthcare Powers of Attorney and Living Will documents (three different documents). You will also want to ensure that your documents have been updated within the last three years. The Powers of Attorney allow you to designate someone to represent you in the event you are unable to represent yourself, and the Living Will expresses end-of-life wishes.
- Do you need to develop a gifting strategy? If so, you and your spouse can each gift up to your annual exclusion amount of $17,000 (per year, per donee) gift tax-free (in 2023). You may want to consider an even more aggressive gifting strategy.
- Are there digital assets that should be preserved? Steps should be taken to ensure that your heirs have access to your digital assets and that digital assets transfer to heirs. You can discuss this and make any updates with your estate planning attorney.
As a director of your finances, a financial advisor can help you work with an accountant or attorney to work through the various items above. Not all professionals know to address these issues as you may have employed the professional just to perform one task like file taxes, create a trust, or manage your investments. If you have a good financial advisor, they are addressing these issues each year with you as new issues evolve. If not, give me a call and I'd be happy to talk about my services. Either way, I hope this outreach helps you put your financial house in order. Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management. Copyright © 2023 Ryan Puplava |
