Kansas and Missouri Estate Planning

What Taxes Should I Expect to Pay on My Inheritance?

Taxes on inheritances vary.

Someone who knows you and loves you had money.

He or she died.

Now you have received an inheritance.

What should you do now?

According to a recent Orange Town News article titled “Will I Pay Taxes on My Inheritance,” your actions are dependent on the type of inheritance you received.

Let us take a look.

Bank Savings Accounts or CDs.

If the account is not a retirement account, the federal government will not impose an income tax.

The federal government does not have an inheritance tax either.

Unfortunately, certain states will impose an "inheritance" tax.

These include Iowa, Maryland, New Jersey, Kentucky, Nebraska, and Pennsylvania.

Talk with an experienced estate planning attorney about the best actions to take.

Primary Residence or Other Real Estate.

Inheriting a home or real estate does not trigger taxes.

When you sell the property and home, you will may be taxed on capital gains.

Valuation is established on the day of death.

Let us say the value is $250,000 at the date of death and you wait to sell it.

When you do sell, the value has risen to $275,000.

The $25,000 gain must then be taxed.

The day you take ownership determines the cost-basis.

Life Insurance Proceeds.

These proceeds are not taxable as income.

There is an exception.

If interest is earned, you could owe taxes.

This occurs when the receipt of the proceeds is delayed.

The Form 1099-INT muse be filed by the beneficiary.

The interest will be taxable by both the state and the federal government.

If the proceeds are transferred to an individual before the insured dies, the proceeds are fully taxable.

There is another possible exemption: the value of the death benefit is included as part of your gross estate for determining federal estate taxes.

Consequently, if the amount of life insurance death benefit put you above the federal estate tax exemption ($11.4 million per taxpayer for 2019), then your estate may be subject to taxation.

Retirement Accounts: 401(k) and IRA.

Whether a traditional IRA is inherited or not, distributions are taxable.

Roth IRA distributions are not taxable, unless taken within five years of the IRA being established.

Laws for retirement plan distributions may change based on pending legislation.

And not for the better.

This means you should discuss options with your experienced estate planning attorney.

Some 401(k)s are taxed or will be taxable.

How much is the tax?

This depends on the particular rules of the 401(k) plan.

The distribution for some plans must be a lump sum.

If a spouse inherits, he or she may rollover into an IRA.

If not a spouse, the lump-sum will likely have to be taken and the resulting taxes paid.

Stocks.

Usually, capital gains are paid on gains made during the period of ownership post-inheritance. (See the hypothetical regarding real estate above.)

When inherited, cost basis is determined from the fair market value on the date of death.

Artwork and Jewelry.

If assets like jewelry, artwork, rare stamps, books antiques, and coin collections are inherited, they will trigger a tax on the next gain at sale.

The rate is higher than most capital gains assets.

Instead of 15 or 20 percent, the capital gains rate is 28 percent.

Valuation like other assets is determined on date of death or the alternate valuation date.

Before accepting your inheritance, you should discuss the inheritance and the tax liability with your attorney.

This will help you have a better understanding of your situation and how your choices will impact your finances.

Reference: Orange Town News (May 29, 2019) “Will I Pay Taxes on My Inheritance”

Do Most Parents Leave an Inheritance to Their Children?

No one should be presumptuous when it comes to a future inheritance.

People have different priorities.

Some value family.

Some value charity.

Some value business.

Some value personal comfort.

According to a recent Think Advisor article titled “Who Leaves an Inheritance, Who Doesn't,” what people prioritize tends to affect their estate planning.

Estate planning will play a significant role in the coming decades as Baby Boomers begin to expire (i.e., die, pass away, etc.).

Baby Boomers together have an estimated $30 trillion in wealth.

This means about 10 percent of U.S. wealth could change hands every five years between 2031 and 2045.

Inheritances will become a hot topic.

Kansas State University (go Wildcats!) researchers decided to investigate the influences on leaving an inheritance.

What did they find?

Those who expected to receive and those who did receive an inheritance were more likely to want to leave an inheritance to their children.

Those who believed leaving an inheritance was important were more likely to do so.

Often businessmen prioritized leaving an inheritance.

In fact, they are about 10 percent more likely than non-business owners to do so.

What does this mean for you?

Regardless whether you choose to leave an inheritance, estate planning will be important.

Working with an experienced estate planning attorney will enable you to plan in such a way as to meet your own goals.

Reference: Think Advisor (October 19, 2018) “Who Leaves an Inheritance, Who Doesn't”

How do I Know if I Owe an Inheritance Tax?

Not all states have an inheritance tax.

The vast majority of Americans will not owe inheritance taxes.

Why?

Most states no longer impose one on their citizens.

Only a handful of states do.

What if you are in one of those states?

What does an inheritance tax mean for you?

According to a recent NJ.com article titled “How to avoid the inheritance tax,” an inheritance tax is levied based on the heir not the size of the estate.

How does it work?

Let me use New Jersey as an example.

If you are a spouse, parent, grandparent, domestic partner, child, step-child or grandchild, you will be considered a Class “A” beneficiary.

Class “A” beneficiaries are exempt from inheritance taxes.

That is right, no inheritance tax at all.

On the other hand, Class “D” beneficiaries will be subject to an inheritance tax.

Examples of Class “D” beneficiaries include nieces or nephews.

How much would they be taxed?

The rate in New Jersey is about 15 to 16 percent.

How do you avoid leaving your loved ones with an inheritance tax to pay?

Start planning early.

You can give gifts during your lifetime up to $14,000 per person per year without being subject to gift taxes.

If you want to give more than this amount, you can pay for education or medical expenses.

These are exempt from gift taxes as long as they are paid directly to the school or medical provider.

Avoid making transfers with three years of death because these are regarded as part of your estate at death, not as gifts during life.

As such, they may be subject to inheritance or estates taxes.

To plan for your specific situation, work with an experience estate planning attorney. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ.com (July 14, 2017) “How to avoid the inheritance tax”

What Should I Do (or Not Do) with My Inheritance?

Honor your loved one by being wise with your inheritance.

The very nature of an inheritance involves loss.

Whenever you experience loss, you need to take time to grieve.

At the same time, what are you to do with your inheritance?

You can and should wait a little while, according to The Reading (PA) Eagle Business Weekly article titled “What to do and what not to do with your inheritance.”

Do your financial planning when you are ready and will not be ruled by emotions.

What about when you are ready?

What should you not do?

Do not be hasty.

Spending every dollar immediately is a bad idea.

Obviously.

Rushing into investments is also risky.

Take time.

Be patient.

Do your research.

Do not overpay on taxes.

When it comes to paying taxes, you can certainly give too much to the government.

How do you know what the appropriate amount would be?

An experienced estate planning attorney can give you an idea of what amount must go to the IRS.

Do not immediately pay off your mortgage.

Why?

Depending on your circumstances, it may not be the best use of your finances.

Low interest rates and tax advantaged deductible mortgage payments may help you stretch your dollars further for retirement.

You do not have a financial plan?

Get one.

Setting goals and a means to reach them is vital.

Do not let anyone pressure you.

Anytime you have money, people will want a part of it or a say in how it is used.

Do not be manipulated to share your money.

Now you have an idea of what to avoid.

What are wise things to do with an inheritance?

Save it.

You can save your money several places.

Where might you deposit it, especially while you are looking for a more longer-term investment strategy?

• A short-term CD
• A money market account
• The bank

Pay off debt.

Debt is a bad mark on your credit and often involves high interest.

If you have credit or loans without tax benefits, start with these.

Do financial planning.

How?

Set long-term and retirement goals before spending the money.

Have a plan?

Follow it.

Update your estate plan.

You have new assets.

Make sure they go to the correct people by updating your estate plan.

This should not be done alone.

Work with an experienced estate planning attorney to ensure it aligns with your situation, local laws and economic changes.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Reading (PA) Eagle Business Weekly (January 17, 2017) “Office Space: What to do and what not to do with your inheritance”

Can I Get By Without a Will?

There is no law saying you must create a will, but you should have one.

Thinking about not getting a will?

Think again.

Your life and the lives of your loved ones will be much better with this basic estate planning document.

You disagree?

Perhaps we should review some common issues associated with not having a will, as outlined in a recent Nerd Wallet article titled “5 Hidden Dangers of Not Having a Will.”

Irresponsible heirs.

If your heirs do not know how to manage money (or even their own lives), you do not want them receiving an inheritance—or at least not an outright inheritance.

Doing so would almost guarantee a squandered inheritance—whether on luxuries or addictions.

You could be driving a wedge further between your responsible and irresponsible heirs.

Pop-up heirs.

When money is involved, people flock like moths to the flame.

To protect your inheritance from the opportunists, you will want a will.

Forged wills.

People can be incredibly dishonest when it comes to money.

If you have a large estate and have no will, people will try to provide you with one.

Putting your estate through fake will contests is not ideal.

Property in multiple states.

Having real estate in more than one state will be an added headache without a will—adding extra costs and time and even additional attorneys.

Executor issues.

When you create a will, you get to name the executor.

If you have no will, the state may designate an attorney to serve in this role.

The issue?

The process is often much slower—something your heirs will not like.

With an executor who is either a relative or connected to your family in some way, your estate likely will be settled more efficiently.

If you want to avoid these problems, meet with an experienced estate planning attorney to design an estate plan specifically for your needs.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Nerd Wallet (August 3, 2016) “5 Hidden Dangers of Not Having a Will”

How Do I Know if I Have Enough Insurance?

To determine the amount of insurance you need, you should consider your entire estate plan.

Proper estate planning can give you a better idea of how to best provide for your loved ones after you have passed.

Perhaps you have a $1.5 million term life insurance policy.

Depending on your unique circumstance, this will cover the bills if you pass away but no more.

According to a recent article in NJ 101.5 , titled “Do you need more insurance?”, you may need to consider other options if leaving an inheritance to your children is important to you.

What should you do?

To start, inventory your assets, including real estate, investment accounts and retirement accounts.

Consider the amount you will need for retirement, then determine how much would be left to pass along to your children.

If you have enough for an inheritance, great!

If not, you may want to consider more insurance.

When purchasing insurance, you will need to determine what type you want.

Term insurance may be great while you are in the workforce, but may not be ideal in retirement depending on premiums.

Universal life insurance may be a good option for leaving an inheritance.

Why?

Permanent insurance premiums may be greater, but they can accumulate cash value. If need be, you can use this while you are still living.

Ultimately, you will want to consider what you can afford now and in the future.

As you plan the best means of leaving an inheritance, you will want to work with an estate planning attorney who can review your specific situation and help you meet your goals.

Oftentimes, an experienced estate planning attorney will know top life insurance professionals to counsel you regarding the proper type and amount of insurance. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ 101.5 (June 27, 2016) “Do you need more insurance?”

How Can I Leave a Lasting Financial Legacy for Generations?

Leaving a lasting financial legacy is dependent on smart planning and the character of your heirs.

You have worked hard and made sound financial decisions.

You have not only built your own wealth but your community on a foundation of strong values.

Now, you have begun your estate planning, and you are torn.

You want to leave this wealth to your family, but you do not want to create entitlement.

Can this be done?

According a recent article in Forbes, titled “The Successful Entrepreneur's Guide to Leaving a Financial Legacy That Won't Spoil Your Kids,” this has been successfully done by the Rockefeller family, and you should use their planning as a guide.

How do you do this?

Good question.

You must create a trust.

Why a trust?

With a trust, you can protect your family wealth by providing specific guidelines for deciding when and how heirs may access the money.

By setting limits on the use of the money, your decedents can utilize the funds to help them achieve their own success.

In short, you are protecting the money for them.

Success involves more than just wealth.

It involves character.

So how do you pass along your values?

You can also use a trust to share knowledge, experience, and wisdom with your family through a Statement of Purpose.

You must take care when creating this trust ... because trusts can be written to divide, distribute, or destroy wealth.

To accomplish your desired goals, you will need the help of an experienced estate planning attorney.

With this steady hand who has been there and done that, you can empower your children to build their own legacy while protecting, preserving and perpetuating your own. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Forbes (June 27, 2016) “The Successful Entrepreneur's Guide to Leaving a Financial Legacy That Won't Spoil Your Kids”

What Should I Consider Before Selecting an Executor?

Naming an executor for the wrong reasons will bring headaches and heartaches to those you leave behind.

It is time for you to select the executor of your estate.

Perhaps you have an individual in mind?

A recent article in Insurance News, titled “The Wrong Executor Can Destroy Even the Best Estate Planning,” addresses aspects of the executor role for you to consider before including a name in your estate plan.

An executor has legal obligations.

This job is not for the faint of heart. Their duties are extensive.

The decedent must gather all of your assets. To do this, they must review your records and go through your home and your belongings. The task also involves reaching out to your employer, insurance companies, banks and brokerage houses.

When the assets have been identified, they must be protected and valued.

In addition to working with the court to probate your will and distribute your assets, the executor must maintain any business dealings in motion before your death.

Finally, they must wind up your final affairs (e.g., pay your creditors and file your tax returns).

Sound like a lot of work?

It is, but it will be much easier if you commit to organization.

Securing the help of an experienced estate planning attorney may also benefit an executor.

An executor has relational responsibilities.

The best way to avoid tension is for the executor to communicate with your family, friends, heirs and loved ones.

He or she should tell them what is being done and why.

One important potential source of discord involves family heirlooms.

An executor may have more freedom within the will regarding how these are to be distributed.

To keep peace and avoid heartache, the executor should speak with all beneficiaries before distributing these items. It would be terrible to give something to someone who valued it less than another.

Your loved ones may also be upset by how long the process takes, especially if the executor is also a fellow beneficiary.

To assuage impatience, it would be wise for the executor to hold regular meeting to provide updates.

Now what should you do?

Choose someone who can carry out these responsibilities efficiently and effectively, then speak with this person to obtain his or her consent.

Be sure he or she fully understands what you are asking them to do.

Thank this person in advance for how they will be helping you in the future, as you will not be around to thank them when that time comes.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Insurance News (June 2016) “The Wrong Executor Can Destroy Even the Best Estate Planning”

Do I Really Need a Will?

People die without wills all the time, but there are consequences.

No one is going to twist your arm until you give in and draft a will.

Well, your spouse might, but it is ultimately your decision.

Before you celebrate saving a few dollars on the cost of a will, you may want to reconsider.

According to an article in CNBC, titled "Prince or pauper, young or old, here's why you still need a will," there are at least three important reasons to get a will.

Intestacy.

When a person dies without a will, they are said to to have "died intestate."

What happens if you die without a will?

The state will decide in a public proceeding who gets what and how much of everything you leave behind that did not have a surviving joint owner, designated beneficiary or was not otherwise arranged to avoid probate (think "revocable living trust).

In short, your money and heirlooms could end up in the hands of someone who should not have them.

You can only avoid this fate by having a valid will to give exact instructions on how you want your assets distributed.

Legacy.

Your estate plan can continue the good you did while you were alive.

How?

You can designate a portion of your assets to pass to the charities and nonprofits you love.

You can even set up a "testamentary trusts" under your will and designate a trustee to oversee the distribution of these funds with instructions on how to do so.

Family.

A will benefits your family whether you have minor or adult children. If your children are minors, you must have a will to designate a guardian for them. If your children are adults, having a valid will is much simpler for those you have left behind as they mourn your loss.

I know death and what follows are not pleasant topics to ponder, but with the help of an experienced estate planning attorney, you can protect your loved ones and prolong your legacy.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

There are two helpful resources just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: CNBC (May 10, 2016) "Prince or pauper, young or old, here's why you still need a will"

Why are My Millennial Children so Disinterested in My Money?

That is a good question. However, I certainly do not want to paint with a broad brush.

I am sure there are a lot of factors, to include unique family dynamics.

Maybe your children just look at "money" differently.

Reuters recently looked into this general issue in an article titled "Equating inheritance with love can cause discord."

According to the article and a survey cited therein, Millennials hold very different views about receiving gifts.

It appears some 33% of Millennials equate a monetary gift with control. They see money as a way for the older generation to exert influence over them.

On the flipside, about 70% of Baby Boomers see a gift of money as an expression of love.

In the words of Cool Hand Luke, it appears what we have here is "failure to communicate"?

And, this failure can really complicate estate planning.

When generations hold different opinions about the motivations of an inheritance, they may well fight over how assets should be distributed.

While most of those over 50 think it is fair to divide estates equally among heirs, only a third of Millennials felt the same way.

Really?

Apparently, the younger generation is more open to weighing financial needs and other factors to determine a recipient's worthiness.

Getting family members to talk to one another about estate planning can be tough.

Nevertheless, endeavor to get everyone involved early in the process.

By doing so, the giver can help avoid any disappointments or misunderstandings.

Whatever you do, however, do not leave any big surprises for loved ones to sort out after you are gone.

Better yet, take steps now to help ensure that all of the stakeholders know what to expect later ... and why.

Open family communication can make an "unequal shares" inheritance distribution easier to handle.

Sometimes a trade-off is helpful—as the giver can pass along something meaningful to each heir—when the gifts do not necessarily have the same financial value.

With the help of an experienced estate planning attorney, even people with very little are able to give in an extremely meaningful way.

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").

Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

Two helpful online resources are just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com.

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Reuters (April 15, 2016) "Equating inheritance with love can cause discord"