What is a tax basis and how will it affect my estate plan?


A tax basis is essentially the purchase price of a piece of property. Whenever that property is sold, the seller must pay taxes on the difference between the sale price and the original purchase price. This concept applies to all property, including stocks, bonds, vehicles, mechanical equipment, and real estate. If debts are assumed along with the purchase price, the principal amount of the debt will be included in the basis. The basis can be adjusted downwards when a person deducts depreciation costs on his or her income tax returns, and may be increased for capital investments towards improving the property that are not deducted for income tax purposes. Selling a property that has been held for a long time can carry a serious tax burden because of inflation, particularly when real estate prices have increased.

When an individual receives property as an inheritance, the tax basis is reset to whatever the fair market value is at the time of the transfer of title. This means that the heir would pay significantly less taxes if that property is sold by the beneficiary than if the original owner were to sell it and devise the money to his beneficiaries. Most simple wills provide that all of a testator’s assets are placed into a residual estate to be divided equally among the heirs. This means that an executor must liquidate the assets of the estate and divide the proceeds among the heirs. However, because there is no transfer of title before the property is sold, the heirs are stuck with the grantor’s basis and they lose an opportunity for a sizeable tax break.

A person planning his or her estate may also reset the basis in his or her property by giving it as a gift directly to his or her heirs or by gifting the property to an inter vivos trust. These actions can have their own tax related consequences, or create other unintended problems for the beneficiaries. Only an experienced estate planning attorney can advise you on the most efficient way to pass your assets on to your heirs.

If you have any questions about this article and would like additional information or to arrange for a no cost consultation please call the Law Office of Leasa J. Baugher, Ltd. Phone: 630-529-2050.

  
 

 

When Will I Receive My Inheritance?

If you’ve been named a beneficiary in a loved one’s estate plan, you’ve likely wondered how long it will take to receive your share of the inheritance after his or her passing.  Unfortunately, there’s no hard or and fast rule that allows an estate planning attorney to answer this question. The length of time it takes to distribute assets in an estate can vary widely depending upon the particular situation.

Some of the factors that will be involved in determining how long it takes to fully administer an estate include whether the estate must be probated with the court, whether assets are difficult to value, whether the decedent had an ownership interest in real estate located in a state other than the state they resided in, whether your state has a state estate (or inheritance) tax, whether the estate must file a federal estate tax return, whether there are a number of creditors that must be dealt with, and of course, whether there are any disputes about the will or trust and if there may be disagreements among the beneficiaries about how things are being handled by the executor or trustee.

Before the distribution of assets to beneficiaries, the executor and trustee must also make certain to identify any creditors because they have an obligation to pay any legally enforceable debts of the decedent with those assets. If there must be a court filed probate action there may be certain waiting periods, or creditor periods, prescribed by state law that may delay things as well and which are out of the control of the executor of the estate.

In some cases, the executor or trustee may make a partial distribution to the beneficiaries during the pending administration but still hold back sufficient assets to cover any income or estate taxes and other administrative fees. That way the beneficiaries can get some benefit but the executor is assured there are assets still in his or her control to pay those final taxes and expenses. Then, once those are fully paid, a final distribution can be made. It is not unusual for the entire process to take 9 months to 18 months (sometime more) to fully complete.

If you’ve been named a beneficiary and are dealing with a trustee or executor who is not properly handling the estate and you have yet to receive your inheritance, you should contact a qualified estate planning attorney for knowledgeable legal counsel.

If you have any questions about this article and would like additional information or to arrange for a no cost consultation please call the Law Office of Leasa J. Baugher, Ltd. Phone: 630-529-2050.

 
 

HOW AN ELDER LAW ATTORNEY HELPS ME PROTECT MY ASSETS?

Elder Law Attorneys provide legal assistance to protect assets in the case you or your spouse must enter a nursing home.  By protecting assets you may qualify for Medicaid benefits sooner without spending all your assets down through private payment to a nursing home.

It is better to meet with an Elder Law Attorney while both you and your spouse are healthy to discuss protecting your assets before entering a nursing home.  Even if you have not planned and a spouse is in a nursing home it may not be too late.

When you meet with an Elder Law Attorney you will be asked questions so the attorney may have an accurate understanding of your monthly income, your assets, your debts, prior gifts you have made in the last five years.  Be prepared to show detailed statements related to bank accounts, investment accounts, life insurance policies, individual retirement accounts and burial plans.  In addition the attorney will need to review existing documents such as your current Will, Trust, Powers of Attorney and real estate documentation. 

Once the attorney reviews all financial and legal documentation then the attorney will explain and present planning options.  Often certain planning options may have benefits in one area while detrimental in another area such as income and capital gains taxes.  The focus of your meeting with an attorney is to become well informed so you may make sound decisions based on current estate, Medicaid and tax laws and not information you hear through well intentioned family and friends. 

An Elder Law Attorney has an understanding of a number of areas of the law including estate planning, real estate, Medicaid laws and rules and tax issues and may provide services such as preparing a Medicaid plan and the Medicaid application; preparing estate planning documents (Wills, Trusts, and Powers of Attorney); preparing Deeds and assisting with real estate closing; and reviewing contracts from a nursing home or assisted living facility.

Many older individuals need the guidance of an attorney who is better able to anticipate issues before they arise.  It is better to receive accurate information so you may sit back enjoy your retirement and know you and your family are prepared for the future. 

If you have questions about this article or would like additional information please call the Law Offices of Leasa J. Baugher, Ltd. 725 E. Irving Park Road, Suite B, Roselle, Illinois Phone: 630-529-2050 to arrange for a no cost consultation.



 
 

To Do List for 2016

60% of Americans die with a Will.  95% of Americans do not have enough food to last 3 days in event of a disaster.

 

Estate Planning:

  1. Do you have a Last Will and Testament?
  2. Do you have a Living Will?
  3. Do you have a Durable Power of Attorney for Healthcare (aka Healthcare Proxy or Surrogate)?
  4. Do you have a Durable Power of Attorney for Finances? A Revocable Living Trust?

Financial:

  1. Do you have a list of the names of all the financial institutions where you have accounts (banks, financial firms, credit unions, and credit card companies), the account numbers, and at least one name and phone number at each institution? 
  2. Have you retained copies of the last 7 years of tax returns, which is the recommended duration to retain these records?
  3. Do you have a list of all of your insurance policies, the company name and contact information and the phone number for claims?
  4. Are your financial records in an organized filing system that you can easily access and maintain?

Medical:

  1. Do you have a list of the names of all of your medical providers, their contact information and what you see them for?
  2. Do you have a list of all of your current medications, over-the-counter and prescription, along with dosages and the purpose of the medication?
  3. Do you have your medical history written down, including allergies, immunizations, prior surgeries, persistent medical problems, and relevant family medical history?
  4. Is your medical information organized and easily accessible to you and at least one other person should you experience a medical emergency?

Vital Records:

  1. Do you have your birth certificate, social security card, military service records, marriage and divorce records, adoption records, passport, forms of identification and other vital records organized and reasonably accessible?

Miscellaneous:

  1. Do you have a copy of the contents of your wallet so that you are prepared should it be lost or stolen?
  2. Do you have your real estate deed(s), title(s), and mortgage documents and homeowners insurance policy organized and accessible?
  3. Do you have a written, photographic and/or video record of your personal property, including a home inventory, so that you can make a verifiable claim in the event of theft, damage or total loss of your property?
  4. Do you have a list of your most important personal and professional contacts that someone else could locate in the event of your incapacity or death?

Emergency Preparedness:

  1. Do you have an emergency evacuation kit with at least 4 days of survival supplies per person in your family?
  2. In an emergency evacuation situation, would you be able to “grab & go” your most critical vital documents and information?
  3. Do you have an evacuation plan which has been coordinated with and is known to members of your family?

Effective Communication with Loved Ones:

  1. Have you shared the information addressed in these questions with at least one trusted family member, friend or professional advisor?
  2. Would at least one person be able to manage your affairs if you became incapacitated, or died unexpectedly?
  3. Have you spoken to your loved ones about your end of life wishes, religious beliefs, funeral or burial preferences and the like?