Wednesday, December 7, 2011

Death and Taxes

"In this world nothing can be said to be certain, except death and taxes"
-Ben Franklin

Today I'll discuss that very sad time when a family must deal with death AND taxes.

When a spouse dies it can take time and effort to transfer legal authority over family accounts to the surviving spouse or other heirs. To avoid cutting off all family access to funds during the transition, consider registering some (or all) accounts with both spouses jointly. Brokerage accounts call this JTWROS, Joint Tenants with Right of Survivorship. This can also apply to credit cards and utilities which may refuse to cooperate with a spouse unless authorized in advance.

If you die without a valid will an "Intestate" Administrator may be appointed by a judge to act as Executor to divide up your assets according to the distribution laws of your state. Some "heirs" might not be recognized, such as step-children that you never legally adopted. If you die without heirs, the state will keep your money and property.

In many families one parent is the treasurer who pays the bills and manages accounts. But if that person dies, will the surviving spouse or heirs know what to pay and where the money is? Be sure both spouses can locate the following: previous year’s Tax Returns (in case audited), Bank/Credit Union statements, Credit/Debit Card statements, Retirement Accounts, Brokerage Accounts, Mortgage or Lease Statement, Utility Bills, Car Payments, and Insurance payments.
Give the gift of peace of mind to your family by making copies of legal documents and storing them in a safe place outside the home (in case of fire). Birth Certificates/Adoption papers, Marriage/Divorce papers, Insurance coverage, Social Security cards, Passport/Green Card, Naturalization documents, Will, Power of Attorney, Mortgage or Real Estate Deeds of Trust, Car Registration/Ownership Papers, Military ID or Military Discharge papers.
Bottom Line
The death of a loved one is trying enough but is often made more stressful from lack of planning. A Will is very important and can help prevent heirs from fighting over and even suing over the family property. My Grandmother preassigned most of her belongings to her two children and six grandchildren so everyone knew who got what. She did not have a rich estate but she did have a LOT of stuff collected over 90 years on an Idaho farm. My portion was a salt & pepper shaker collection which is proudly on display in our home.
It can take time to "probate" a will and transfer ownership of bank accounts, etc. During this period a family could be blocked from accessing funds needed to pay bills. Hence the importance of sharing Joint Ownership with Right of Suvivorship with a spouse or trustworthy heir.
Here is what Wikipedia says about Probate:
"Probate is a process by which a will of a deceased person is proved to be valid, such that their property can in due course be retitled or transferred to beneficiaries of the will.
  • Creditors need to be notified and legal notices published.
  • Executors of the Will need to be guided in how and when to distribute assets and how to take creditors' rights into account.
  • A Petition to appoint a personal representative may need to be filed and Letters of Administration obtained.
  • Homestead property, which follows its own set of unique rules in states like Florida, must be dealt with separately from other assets. In common law jurisdictions jointly owned property will pass automatically to the surviving joint owner separately from any will, unless the equitable title is held as tenants in common.
  • There are time factors involved in filing and objecting to claims against the estate.
  • There may be a lawsuit pending over the decedent's death or there may have been pending suits that are now continuing. There may be separate procedures required in contentious probate cases.
  • Real estate or other property may need to be sold to effect correct distribution of assets pursuant to the will or merely to pay debts.
  • Estate taxes, gift taxes or inheritance taxes must be considered if the estate exceeds certain thresholds.
  • Costs of the administration including ordinary taxation such as income tax on interest and property taxation will be deducted from assets in the estate before distribution by the executors of the will.
  • Other assets may simply need to be transferred from the deceased to his or her beneficiaries."
This is a sad and painful topic but needs to be bravely faced for the sake of surviving heirs.

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