4 Things To Know About Inheritance Before You Pass Anything on

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None of us will be there to make sure the transfer of our assets goes smoothly after death, so the time to plan and prepare is while you’re still alive.

Consult with an estate planner to craft a comprehensive strategy, but make sure you understand the following key points about leaving an inheritance today.

Estate Planning Is for Everyone, Not Just the Rich

There’s a common misconception that estate planning is for wealthy benefactors with vast, valuable and complex assets to pass down to their heirs. That’s a large part of why the 2024 Caring.com Wills and Estate Planning Study found that just 32% of Americans have even a basic will — 40% don’t think they have enough assets to make it worth their while.

Explaining the harm in this disconnect, the study’s authors suggest that everyone over the age of 18 should have a will because, in addition to assuring the distribution of financial assets according to your instructions, they also: 

• Give you control over crucial healthcare decisions.
• Determine the fate of your social media accounts and other digital property.
• Provide binding guidance on how children should be cared for and by whom.

Without a Will, the Courts Decide Who Gets What

According to Estate & Will, dying without a will is called intestacy, and the assets of those who die intestate are immediately frozen by the courts, which then appoint someone to pick through every financial detail and apply their state’s intestacy laws — which vary considerably — to determine who gets which assets.

It’s a long, exhausting and frustrating process that does not consider family dynamics or the wishes of the deceased and often leads to infighting and lawsuits — and it’s expensive, costing as much as 7% of the deceased’s estate.

Trusts Offer More Privacy, Protection, Control and Tax Relief Than Wills

Like estate planning, in general, people tend to associate trusts with the wealthy and elite. However, like wills, they’re just a set of legal instructions from which many people across the income spectrum can benefit — and the benefits are numerous.

According to Western & Southern Financial Group, there are many kinds of trusts, but overall, they:

• Avoid probate: Even with a will, most estates still must go through probate court. Trusts generally do not.
• Offer privacy: Wills are on the public record. Trusts remain private after death.
• Provide greater flexibility and control: Unlike wills, trusts can be written to accommodate numerous contingencies regarding asset distribution, including while the trustor is still alive.
• Have tax advantages: Some types of trusts are designed to minimize estate and inheritance taxes, which wills do not.

Stepped-Up Basis: The Phrase Every Long-Term Property Owner Must Know

According to Fidelity, the stepped-up basis rule adjusts the value of inherited property and other assets to their fair market value at the time of the owner’s death. Anyone considering selling an appreciated asset in later life must understand the implications before cashing out.

Consider the following example:

• You bought a house for $100,000 in the 1980s.
• The home has appreciated to a market value of $600,000 today.
• If you sell the home, you incur a capital gain of $500,000.
• If you instead leave it to a child, the stepped-up basis resets the market value to $600,000 upon your death. 
• If the child then sells the property for $600,000, they will incur no taxable capital gain.

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