Should an estate plan focus more on liquid assets?

An attorney that focuses on estate planning can help an individual determine the most efficient way to transfer assets to loved ones and heirs. However, a discussion might also be warranted about which assets are best suited to certain types of transfers.

As background, liquid assets, like cash, are generally the easiest for heirs to manage upon receipt. Tangible assets, in contrast, might have to be managed, imposing upon the time of heirs, or require work before they can be sold. If heirs are pressed for time, they may be compromised into accepting a sale price at well under an asset’s fair market value.

Does this mean that an individual should attempt to liquidate his or her personal property before passing? Each situation is different, and an attorney can help an individual choose between sentimental and practical considerations.

Tax treatment is another consideration that may affect how an individual plans his or her estate. Many inherited assets receive a step-up in basis, set at the fair market value at the time of the owner’s death. This provides a more favorable tax outcome to heirs, who are not imputed with the appreciation. However, retirement accounts, such as 401(k)s and IRAs, do not receive that step-up in basis. That may translate into a sizable tax consequence to heirs once they withdraw funds from the accounts.

Finally, the federal estate tax exemption provides some breathing room. However, there may be state estate tax consequences. To ensure that you have accounted for both federal and state law, consult with an estate planning law firm.

Source: Investopedia, “Estate Planning: Which Assets Are Best to Leave Your Family,” Tim Parker, June 27, 2016


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