As you grow older, you may hear more often of the importance of creating an estate plan. The many benefits of estate planning include making your wishes known and leaving a nice gift for your loved ones. You may have seen news stories about people who failed to write a will, and their heirs were left to fight and scrap over their inheritances.
You certainly don't want this to happen to your Louisiana family, so you may have already decided how to distribute your assets. However, have you considered the consequences of your gifts?
Predicting the negative outcomes
While it may seem cynical, there is some truth to the saying that no good deed goes unpunished. Turning your assets over to your children may seem like a generous act, but you may be leaving them with penalties in the form of taxes, ineligibility for federal aid and irresponsible behavior.
For example, if you give your children a gift that has appreciated greatly, such as valuable company stock purchased at a very low price, your child may be responsible for paying capital gains tax. On the other hand, if you hold on to the stock until after your death, your child will owe no capital gains taxes.
Better options for passing along your assets
You may think it is easier to by-pass a will and add your child's name to your bank account or property title. This may have many unforeseen consequences, for example:
- Sharing ownership of your property may disqualify your child from getting financial aid for your grandchildren.
- Upon your death, joint ownership of bank accounts may create confusion when trying to determine if the funds in the account are meant to pass on to your child or pass back to your estate.
- Joint ownership with your child leaves your assets vulnerable to your child's creditors.
- Any property you own jointly with your child may become part of marital assets if your child goes through a divorce.
Alternatives to these scenarios include revocable living trusts, powers of attorney and prenuptial agreements to protect both your interests and those of your children. Your estate plan can include a power of attorney that will allow you to designate someone to have access to your finances if you become incapacitated. This will relieve you from having to add your child's name to your personal accounts.
Trusts can also protect your assets and hold them until your child is ready for them. This is especially important if your child is a minor. A trust can also shield your assets from the soon-to-be ex-spouse of your child. The many other alternatives available for estate planning can be explained by an estate planning professional.