Splitting up cash is simple. Splitting an antique vehicle, jewelry, or a vacation home, not so much. If you fail to prepare by answering these three questions, your family could be in for some trouble.
To kick-start the distribution discussion, here are three key questions to answer:
Just how much is it worth?
You must start with the asset’s fair market value. Regardless of whether you would like to pass down the asset itself or gain from the sale; this is the basis for any plan. This attaches a real, present number to a product that’s almost certainly changed in value over time.
When it is time to obtain an appraisal of an asset, find an experienced, licensed appraiser. Particularly when it comes to artwork, you will find many seemingly free options for valuing your collection. But the financial risk of mispricing your assets might be significant. Do not rely on online art price manuals, advice from the aunt who was once a painter, or perhaps the first seller — who might have a conflict of interest.
Who would like it?
Beyond real monetary price, it is important to take into account the emotional or sentimental value of your assets. While your family heirlooms can carry significant weight in your mind, your kids may have stronger attachments to the family’s getaway home where memories were created.
If multiple heirs are fighting for the same asset, you’ll need to work out if and how it can be divided. If it cannot be split, then you will need to plan for how to fairly divide other resources. Maybe some, but not all, your heirs want to keep the asset, it might be more powerful to make an equitable buyout scenario that transfers possession to the heirs who want it.
How can it be passed on?
You’ve got quite a few alternatives for passing on non-liquid assets. In most scenarios, the ideal choice is to allow an heir to acquire the asset itself. Non-liquid assets get a step-up in cost basis that alleviates some of their capital gains tax burden if the inheritors sell it. You might even set the asset in a trust, family partnership or LLC and formalize the transfer of possession in a tax-efficient way. As a last resort, if you do not feel like your heirs know the asset enough to sell it for a reasonable price, you can choose to sell it yourself, pay the right taxes and gift the money.
Many households decide to push off discussions about how specific items will likely be handed down, because conversations can get emotionally charged. But, dismissing these potentially valuable assets can cause both legal challenges and family conflict in the future. Discussing these questions in advance will put you and your family on the course toward a detailed strategy.
- The Basics: Financial Power of Attorney - June 23, 2020
- Facing Reality: The Essence of Family Business Succession Planning - June 16, 2020
- Who can contest a will? - June 8, 2020
