Moore Law Firm

Moore Law Firm

9949 W. Bell Road
Suite 201
Sun City, AZ 85351
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623-207-9153

Your beneficiaries need to prepare for their inheritance

As parents start the estate planning process, they will often leave some money to their children in their wills. However, simply bequeathing money to your children in your will is not enough. You will need to talk to your children about how to get the money, how to minimize inheritance taxes and other inheritance issues.

First, your children should know who to contact for financial advice when the time comes. It may be beneficial for you to set up a meeting between your beneficiaries and your financial advisor. At the very least, provide your children with the adviser's contact information.

Your children should also be aware that inheriting your IRA means that they will be paying taxes on withdrawals. If they choose a "stretch" IRA option, they can take the required minimum distributions based on life expectancy, or liquidate the account at some point over the next five years. Your children should be aware that if they choose to take a lump sum, they may lose 40 percent, or more, of the total amount in the account. Unlike a surviving spouse, your children cannot roll your IRA money into their own IRA or 401(k) accounts without being taxed on the whole amount. You may consider having your IRA custodian administer the inherited IRAs for your kids and take care of the "RMD"s. Remind your children that failing to take the required amounts will result in significant tax penalties. As for annuities and other tax-deferred, non-retirement assets, your child should be aware that the amount must be included as gross income when they file taxes.

Lastly, your children should be aware that "step-up in basis" may affect some of their inherited assets, such as property. Generally this means that whatever the value of your asset is on the day you die will be your heir's cost basis. If your child decides to sell the asset in the future, the capital gains tax will be based on the stepped-up cost basis, not what you originally paid for the asset.

If your children will be inheriting your money and assets, make sure they are aware of what to expect. A financial advisor or estate planning attorney can help you explain these complicated topics to your kids.

Source: Kiplinger, "5 Things Your Kids Should Know Before They Inherit," Matt Hausman, Jan. 29, 2018

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Moore Law Firm
9949 W. Bell Road
Suite 201
Sun City, AZ 85351

Phone: 623-207-9153
Phone: 623-207-9153
Fax: 623-977-7237
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