Will You…Won’t You…Why?

We can only offer a brief overview of some of the key issues. The topic of wills, estates and inheritances can be very complicated depending on your personal situation. As always, if you have any questions, please give us a call at 503-656-0699.

Where There is a Will…

If you own a house, car, property, antiques, or have a bank account, a will allows for the legal transfer of these assets. If you have minor children, a will enables you to designate their legal guardian if both parents are deceased. Otherwise, the court and state will decides who will raise your children. A will does not supersede beneficiary designations (discussed later) or trusts. In most cases, a well-written will can avoid lengthy probate.

A will needs to be updated whenever you experience a significant life change such as a marriage, divorce or death of spouse. A will should be updated when you remarry, add a child to your family or when a child dies before you. You should review your will with an attorney if you move to a new state or country. As you add assets or sell them, your will may need updating. If you want to support a particular cause or organization through your will, you may need to update it to reflect your wishes.

Giving the Children Their Inheritance Now

It sounds appealing to sign your adult child onto your home (or other property) title while you are still alive and living in the home. It may not be a wise idea, tax-wise. You may have a gift tax issue, depending on the value of the property. Also, there is no step-up in basis for the child, so more taxes could be due when the property is sold. If your goal is to avoid probate, leave your property to an heir in your will. When inherited after your death, the recipient gets the property at a new, maybe higher, basis – the fair market value of the property on your date of death. The same thing applies to stocks and other brokerage investments.

An interest in gifted property can become an asset vulnerable to legal judgment. If your child divorces his or her spouse, is sued or declares bankruptcy, the property you gift may end up in the hands of someone you never intended.

Benefitting the Beneficiary

A beneficiary is someone you designate to inherit an investment account upon your death. IRA’s, Roth IRA’s, some brokerage accounts and life insurance policies require you to name a beneficiary when you first open the account. As with a will, you should make it a point to periodically review your beneficiary designations as major life events occur.

Stepping Up to a New Basis

When an asset’s ownership is transferred upon death, most of the time it will get a "step-up" in basis to its fair market value on the date of the first owner’s death. Basis is the original purchase price of the asset and is used to calculate capital gains (the amount to be taxed) when the asset is sold. If your father gives you 20 shares of stock he bought in 1960 for $10.00 per share and you sell it for $500.00 per share in 2009, you will pay tax on $9,800 of capital gain. If you inherited the 20 shares upon his death and they were worth $400 per share on that day, you would only pay tax on $2,000 of capital gain.

Trusting to the Future