Category: Corporate Governance

A number of topics may motivate someone to consider estate planning.  A change in family circumstances, a reminder of mortality, a new life, management of tax burdens, succession planning, and many others.  The tax system can feel especially intimidating.  In addition to managing the estate tax, estate planning can also help clients address income taxes.

One of the most effective ways to manage income taxes through estate planning is by addressing the step-up in basis at death.  At death, certain assets, such as real estate, stocks, or other investments, may receive a “step-up” in their cost basis. Cost basis is essentially the original value of an asset for tax purposes, typically the purchase price. The step-up adjusts this basis to the asset’s fair market value on the date of death.  But how does this help the beneficiaries who receive that asset?

Imagine you purchased a piece of property for $1,000,000 many years ago, and its value has appreciated to $5,000,000 by the time of your death. Under the step-up in basis rule, your beneficiaries would inherit this property with a cost basis of $5,000,000, not the original $1,000,000. If they decide to sell the property immediately, they would likely incur little to no capital gains tax, as the sale price would be close to the new stepped-up basis.  Alternatively, if you sold the property before passing away in order to transfer cash to your beneficiaries, you would pay capital gains tax on the $4,000,000 increase in value between the sale price (assuming the actual price matches the fair market value) and the cost basis.

Key Benefits of the Step-Up in Basis:

1. Significant Tax Savings: By resetting the basis of appreciated assets, the step-up in basis can eliminate substantial capital gains taxes that would otherwise be due upon the sale of inherited assets.
2. Simplified Record-Keeping: Your beneficiaries won’t need to track the original purchase prices and adjustments over the years. The step-up provides a clear, current market value basis for tax purposes.
3. Enhanced Estate Value: The step-up in basis can preserve more of your estate’s value for your beneficiaries because less will be lost to taxes.

Understanding the step-up in basis can help you make strategic decisions about which assets to retain in your estate. For instance, assets with significant appreciation might be better held until death to maximize the tax benefits for your beneficiaries.  Conversely, assets with little or no appreciation might be more advantageous to sell or gift during your lifetime, utilizing annual exclusion gifts or lifetime gift tax exemptions. Keep in mind, however, that not all assets qualify for a step-up in basis. Retirement accounts, such as IRAs and 401(k)s, for example, do not receive this treatment. Additionally, it is crucial to consider your entire financial picture, your goals, and the specific needs of your beneficiaries.

Looking for the best way to maximize the use of your Estate Plan? Contact our team to discuss the best way to review or create an Estate Plan that works for your family.

About the Author

S. Blaydes Moore, JD
Attorney

When children are tasked with the responsibility of caring for aging parents, they are often intimately involved with financial care as well.  Despite both the parents’ and children’s best intentions, mistakes can often be made that unintentionally alter the disposition of assets and create headaches during the administration process post-death.

One of the most common mistakes that we see is making children co-owners on accounts to easily allow children access to funds to care for parents.  While this accomplishes the goal of providing children access to accounts, this also makes a gift of ½ of the account to the child which could trigger gift tax depending upon the value of the account.  Additionally, in most cases, this also means that the child added to the account will inherit 100% of that account to the exclusion of other children not named as owner.  This can result in inheritances among children not being equal, children (if they are cordial and want to honor the intent of the parents, which in some situation is a BIG if) having to gift large sums of money between each other post-death to even up inheritances (which again can trigger gift tax for the children), and a loss in step-up in basis for ½ of the account depending upon the types of assets in the account.

While these situations can be worked through and sorted out, there are cleaner options available to accomplish the same results.  First, having an up-to-date financial power of attorney in place ensures that an agent can step into the principal’s shoes to assist in providing that financial care from the principal’s accounts.  Second, a comprehensive revocable trust plan with assets titled in that revocable trust allows a co-trustee or successor trustee to step in and manage trust assets on behalf of the grantor when that need arises. These options provide the same access for children on their parents’ accounts without the unintended consequences outlined above.

Here at Stewart Law, we can help plan for these situations ahead of time to ensure clients, and their families, are set up for success now and into the future.

Looking for the best way to avoid these mistakes? Contact our team to discuss the best way to review or create an Estate Plan that works for your family.

About the Author

John J. Long, Jr., JD
Partner

• Problem: Delaying the creation of an estate plan can leave your assets unprotected and your wishes undocumented. Yes, this is the case even if you were meaning to get to it soon.
• Solution: Work with a team that does this every day who can walk you through a well-defined process.

• Problem: Significant life changes, such as marriage, divorce, the birth of a child, or acquiring significant assets, can render your estate plan outdated.  New laws can also leave your planning in need of attention.
• Solution: Regularly review and update your estate plan to reflect any major life events or changes in your financial situation. Some people review their plan throughout the year. On the other end of the spectrum, no one should let more than 3 to 5 years pass without a thorough review of how their current plan addresses their needs.

• Problem: Many people fail to include online accounts and digital assets in their estate plans, leading to confusion and legal issues.
• Solution: Create a comprehensive list of your digital assets and include instructions for their management in your estate plan. Give the appropriate persons authority to handle or dispose of your digital assets according to your wishes

• Problem: Estate taxes can significantly reduce the value of the assets passed on to your heirs.
• Solution: The vast majority of our clients see their net worth grow substantially over time. Understand tax implications and explore strategies to minimize the tax burden.

• Problem: Lack of communication with heirs can lead to disputes and misunderstandings regarding your estate plan.
• Solution: Clearly explain your plans and decisions to your family members to manage expectations and reduce potential conflicts. A general overview of your thinking, even without any discussion of values, can go a long way to promote harmony among your family members later.

• Problem: If assets are left to pass to heirs only through the court-supervised probate process, it can be time-consuming and costly.
• Solution: Consider using trusts and other estate planning tools to allow assets to pass directly to heirs without the need for probate, thus saving time and money. Importantly, these techniques add privacy regarding your assets and their disposition, as well as maximizing the value of what you leave to family and others.

Looking for the best way to avoid these mistakes? Contact our team to discuss the best way to review or create an Estate Plan that works for your family.

About the Author

Todd A. Stewart, JD
Managing Partner

Estate planning isn’t just about numbers and assets; it’s about the legacy you leave behind for your loved ones. In the intricate tapestry of estate planning, one crucial thread often overlooked is the importance of family involvement. In North Carolina, as in every corner of the world, the significance of bringing family members into the estate planning process cannot be overstated.

Preserving Family Harmony
Family dynamics can be complex, and without proper communication and involvement, misunderstandings and conflicts can arise when it comes to distributing assets and making important decisions. Involving family members in the estate planning process from the outset fosters transparency and understanding. It allows individuals to express their wishes openly and ensures that everyone is on the same page, ultimately preserving family harmony long after you’re gone.

Passing Down Values
Your estate plan isn’t just a roadmap for distributing assets; it’s a reflection of your values, beliefs, and priorities. By involving your family in the estate planning process, you have the opportunity to pass down these values to future generations. Whether it’s a commitment to philanthropy, a dedication to education, or a love for a particular cause, involving your family ensures that these values are upheld and honored in perpetuity.

Preparing the Next Generation
Estate planning isn’t solely about the present; it’s about preparing the next generation for the responsibilities that come with wealth and inheritance. By involving family members in the estate planning process, you can educate them about financial literacy, stewardship, and the importance of responsible wealth management. This involvement empowers your heirs to make informed decisions and ensures a smooth transition of wealth from one generation to the next.

Addressing Family Dynamics
Every family has its dynamics, and estate planning provides an opportunity to address and navigate them effectively. By involving family members in the process, you can identify and mitigate potential conflicts before they arise. Whether it’s ensuring fair distribution of assets or addressing concerns about specific provisions in the estate plan, involving your family allows you to proactively manage and resolve any issues, fostering greater peace of mind for everyone involved.

Creating a Lasting Legacy
Ultimately, estate planning is about more than just distributing assets; it’s about creating a lasting legacy that extends beyond material wealth. By involving your family in the estate planning process, you can ensure that your legacy is one of unity, harmony, and shared values. It’s an opportunity to bring your family together, strengthen bonds, and lay the foundation for a prosperous and harmonious future.

In conclusion, family involvement is not just beneficial but essential in legacy estate planning. By bringing your loved ones into the process, you can preserve harmony, pass down values, prepare the next generation, address family dynamics, and create a lasting legacy that endures for generations to come. In North Carolina and beyond, the power of family unity in estate planning cannot be overstated. Stewart Law is working with our clients to coordinate with family members to have these important discussions.

If you wish to schedule a family meeting to discuss your estate plan and the legacy you will leave behind, please contact Stewart Law and ask to speak with one of our attorneys.

About the Author

Hillary E. Mims
Senior Paralegal

Congratulations!  Now that you have said your vows and “I do”, it’s time to dive in and plan your future together.   Unlike planning a wedding, putting an Estate Plan into place is a piece of cake when you work with Stewart Law.  For newlyweds, establishing a solid plan for the future is not only prudent, but also an expression of love and commitment to each other’s well-being.

Estate planning is the process of arranging for the management and disposal of your assets, while you are in good health and in the event of death or incapacitation. While it may seem daunting, especially in the early days of marriage, it’s a crucial step to ensure that both partners are protected and that their wishes are honored. Below are some key considerations for newlyweds embarking on the journey of estate planning:

1. Understanding Your Assets: Take inventory of your assets, including bank accounts, investments, real estate, retirement accounts, life insurance policies, and valuable personal property. Knowing what you own is the first step in determining how it should be managed and distributed in the future.
2. Wills and Trusts: Drafting a Will is essential for specifying how you want your assets to be distributed after your death. This becomes especially important if you have specific wishes, such as providing for children from previous relationships or supporting charitable causes.  Also, the default laws that apply to those decedents who do not have a Will often lead to very different results than we see our clients actively choose. Additionally, establishing trusts can offer more control over how assets are managed and distributed, providing protection for you and your beneficiaries, especially in blended family situations.  Keep in mind, a trust may not be for everyone and we are happy to discuss which option best suits your needs and accomplishes your goals.
3. Beneficiary Designations: Review and update beneficiary designations on life insurance policies, retirement accounts, and other accounts as needed. Marriage often triggers changes in beneficiaries, and it’s crucial to ensure that your loved ones are designated correctly.
4. Power of Attorney: Assigning powers of attorney allows you to designate someone to make financial and healthcare decisions on your behalf in the event of incapacity. This ensures that your wishes are followed and that your spouse can act on your behalf if necessary.
5. Healthcare Directives: Establishing advance healthcare directives, such as a living will and healthcare power of attorney, outlines your preferences for medical treatment and appoints someone to make healthcare decisions for you if you are unable to do so.

Discussing estate planning may not be the most romantic topic, but it’s essential for newlyweds to have open and honest conversations about their wishes, concerns, and expectations for the future. Clear communication can help avoid misunderstandings and ensure that both partners are on the same page.  Estate planning is not only about distributing assets but also about protecting your legacy and ensuring that your loved ones are cared for according to your wishes. By taking proactive steps now, you can provide peace of mind and security for yourself and your spouse as you embark on this new chapter together.

About the Author

Summer L. Stock
Paralegal

Preparing an estate plan is a process that most often affects many people beyond the person or couple creating the plan.  Friends and family – especially children – feel the impact of the decisions you make most acutely when you are not there to shepherd them through.  Addressing heirlooms and personal property in your plan can help your loved ones shoulder the weight of loss and the responsibility of executing your plan.

Thinking through your tangible personal property, or your assets that you can physically touch and hold – like furniture, books, jewelry and clothing – makes the planning process more concrete.  Starting with items that will affect your loved ones emotionally can open the gates to a complete and robust plan.  If you know a child or other loved one is dreading this topic, talk with them about favored memories and experiences and the tangible remembrances of those occasions.  You may find that your loved one associates certain objects with strong emotions tied to your relationship.  Starting with these treasured items may build a bridge to thinking through other assets, like residences and investments.

If you have the feeling that a conversation with a parent or other loved one about their plan is becoming more and more important, starting with their memories and positive feelings for their family evidenced by physical items may bring them around to consider the impact of their planning (or lack thereof) and encourage them to take a look at creating a plan to stave off family conflict.

During these conversations, encourage your loved one to reduce their wishes and expectations to writing.  This writing may be incorporated into a will or revocable trust as a memorandum giving the Executor or Trustee, respectively, the power to ensure the wishes are enforced.

Some items may not need to be specifically designated.  These items can be liquidated and added to the cash or other residual assets and distributed to family and friends as preferred.  If there is conflict over who should receive an item, then implementing a strategy such as rock paper scissors or a draft can help ease tension and create an equitable method for divvying up treasured items.  Consider making duplicates of items such as family photographs, letters, handwritten recipes, and the like.

Once these physical objects have been accounted for, talking through more impersonal assets like deposit accounts, securities, and retirement plans may be more palatable.  After outlining basic wishes and desires, consider contacting an attorney to go review those wishes and to implement them into an enforceable plan with other benefits and features, such as avoiding probate or incorporating methods for discouraging conflict.  Attorneys specialized in estate matters may also have additional ideas regarding any sticky subjects.

About the Author

S. Blaydes Moore, JD
Attorney