Highlighting a tweet from a favorite of ours, @KurtSupeCPA, so that we can all learn that putting our hands on this hot stove can and should be avoided. It may be hard, but not difficult, to help your family. It takes an honest conversation, an alignment on how to best protect the family legacy, and then some fundamental execution to ensure that our process, planning, and paperwork are in order. To the story:
Sarah's mom passed away. Sarah pulled out the deed to sell the family home. Several years ago, her mom had added Sarah as joint owner. Sarah remembered signing at the attorney's office. "No probate. It'll be easier," her mom had said.
Sarah thought it was smart planning. Until she called her CPA. "You may owe around $83,000 in capital gains tax when you sell." "What? Inheritances aren't taxed."
"Half of this gets step-up. But the half your mom gifted you several years ago? That keeps her $200,000 basis. You'll owe tax on half the gain when you sell for $900,000." Her mom was trying to help. She may have created an $83,000 tax bill instead.
My best friend calls this “tripping on the last hurdle” and it captures the anguish rather well. Some ways he notes to mitigate this unforced error include:
- - TOD (Transfer on Death) deed
- - POD (Payable on Death) for accounts
- - Beneficiary designations
- - Trust
- - Power of Attorney (access without ownership) - this ends at death but great if there is a disability
And here’s his kicker, “Bottom line: Joint ownership feels simple. It can be expensive.” And there it is, when help isn’t helpful. When was the last time the family double checked Mom and Dad’s paperwork? Grandma and Grandpa’s? There is ~$85T of inheritance starting to be passed down now, and without proper planning, process, and paperwork, the government and the tax man and the probate courts are going to take our family wealth.
Curious, what are you waiting for to move your family forward…