On The Same Page: Preparation for Estate Plan Heirs

Failing to plan comprehensively can be a big downfall for a modern estate plan. There’s more involved than just putting your own documents together, though. Communicating with the beneficiaries is another crucial step. It turns out that all too often, plans don’t wind up passing on assets the way creators thought they would. A 2012 study conducted by U.S. trust explored the situations of more than 3,000 wealthy U.S. families, finding that 70 percent were unsuccessful in passing on family assets to the next generation. Three critical reasons were cited for these failures:

Many of the miscommunications that end up with arguments between family members could have been prevented with communication beforehand. Heirs, too, need to do some work ahead of time to ensure they are prepared for the transfer of assets. Heirs should be aware of the estate tax lifetime applicable exclusion amount and whether any state estate taxes will be applied. Gifted assets carry forward with the deceased’s tax basis, but inherited assets will receive a “step up” towards market value at the time of death.

Retirement assets should be scrutinized closely since they are very susceptible to tax mistakes and because they don’t get a step up in basis. Make sure all the forms are updated properly and that the heirs are aware of the plan’s rules for taking over/obtaining access to assets.