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Assets and priorities in estate planning

A Nevada senior dealing with estate planning considerations may wonder about the best assets to keep for passing along to heirs. Some assets are better to retain until death, and others should be liquidated rather than held for testamentary distribution. While the estate planning process is affected by one's unique portfolio, there are some helpful principles to follow in managing assets.

Taxes and value play a big part in the decision to keep or liquidate an asset. An asset that might create a greater tax burden for an heir may be better to liquidate. An asset that may have limited tax implications may prove to be better financially for an heir. Roth IRAs, for example, grow without creating a tax burden because they are funded with money that has already been taxed. Tax-deferred IRAs, on the other hand, create a tax burden for heirs. It may be better to tap into a tax-deferred account and leave a Roth IRA alone prior to death. In considering stocks, it is better to keep those that have appreciated greatly, because their tax basis will be stepped up to the fair market value on the date of the owner's death, which will allow the appreciation to be passed along tax-free to the recipient.

Assets that should be used first include bonds, cash and depreciated securities. In the case of bonds, limited appreciation is likely to occur, making it less risky to use this asset sooner. In the case of depreciated securities, capital loss deductions can be claimed and carried forward. If the depreciated asset is held until one's death, the deduction is lost, resulting in an heir receiving less value than would have been available to the owner of the asset during life.

Because taxes and other financial implications can be confusing, a complicated estate may be difficult to evaluate without experienced assistance. An estate planning lawyer may be able to guide a client through the process of determining value and prioritizing asset distribution and liquidation efforts.

Source: Forbes, "Estate Planning: A Ranking of Good Assets and Bad Assets", William Baldwin, August 25, 2014

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