One strategy to get your children prepared to handle the assets they will eventually inherit, is to have them meet with your professional advisors. They can explain what you have been doing.
FedWeek’s recent article entitled “Preparing Your Heirs for Their Inheritance” suggests that your children should meet with your accountant for an explanation of any tax planning tactics that you have been implementing. That way those tactics can be continued after your death. If you have a broker or a financial planner, your heirs should meet with this adviser for a review of your portfolio strategies.
Know that if you hold investment property, it might pose special problems.
While your investment portfolio can be split between your children, who can follow their individual inclinations, it is tough to divide physical property. Your kids might disagree on how the property should be managed.
With any assets—but especially rental property—you have to be realistic. Ask yourself if your children can work together to manage the real estate.
If they cannot, you may be better off leaving your investment property to the one child who really can manage real estate and leave your other children non-real estate assets instead. You might also provide that some of your children can buy out the others at a price set by an independent appraisal.
Another way you can help is by proper handling of appreciated assets, such as stocks.
If you purchased $20,000 worth of XYZ Corp. shares many years ago, those shares are worth $50,000. If you sell those shares to raise $50,000 in cash for retirement spending, you will have a $30,000 long-term capital gain.
You might raise retirement cash, by selling other securities where there has been little or no appreciation.
That will allow you to keep the shares and leave them to your children. At your death, your shares may be worth $50,000, and that value becomes the new basis (cost for tax purposes) in those shares. If your children sell them for $50,000, they will not owe capital gains tax.
All of the appreciation in those shares during your lifetime will not be taxed.
Reference: FedWeek (March 31, 2021) “Preparing Your Heirs for Their Inheritance”
Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys