Be shrewd when passing along assetsBy Jason Alderman
If you're among the 45 percent of Americans who've already written a will, you may think you've done everything necessary to ensure a smooth transition of your assets to your heirs. Not necessarily.
Some people draft their will but never amend it, even after important life–changing events. Others lose out on favorable tax advantages available when they transfer assets to beneficiaries while still alive.
Here are a few tips for more effectively settling your affairs:
First, calculate your net worth. Draw up a list of all personal property (house, car, jewelry, furniture, etc.) and other financial assets and accounts such as IRAs, 401(k) and pension benefits, bank accounts, investments and stocks. This can be a helpful exercise when deciding how to allocate your assets.
More importantly, periodically reviewing your list might reveal whether you’ve been spending your savings too rapidly, thereby providing an opportunity to re–jigger your budget and curb harmful spending habits. For help creating a workable budget, check out the tools on Visa Inc.'s free personal financial management site, Practical Money Skills for Life (www.practicalmoneyskills.com/budgeting).
Update legal paperwork periodically. This includes updating your will and all beneficiary designation forms for insurance, retirement plans and other financial accounts whenever your life situation changes – for example, after marriage, divorce, birth of child, or death of spouse or beneficiary.
What could go wrong? Suppose you divorced and remarried: If you never changed beneficiaries, your life insurance benefit could go to your former spouse; or if you forgot to add new children as co–beneficiaries, they could inadvertently be left out of your estate. Consult a financial professional about your particular situation. If you don't know one, www.plannersearch.org is a good place to start your search.
Reap tax savings. There are several ways you can lower your taxes while sharing your assets with others. For example, if you itemize income tax deductions, any contributions made to IRS–qualified, tax–exempt organizations are deductible. So if you were planning to leave cash, stock or property to a charity anyway, you might be able to significantly reduce your tax bite while you're still around to enjoy making a donation. See IRS Publication 526 at www.irs.gov for details.
If you were planning to leave money to others after you die and can afford to now, you're allowed up to $12,000 a year in gifts per individual before having to pay a gift tax. Note that gifts to pay for tuition or medical expenses and gifts to your spouse, charities and political organizations generally are not taxable. Go to Publication 950 at www.irs.gov for more details.
Finance college. If you plan to help pay for education for your kids, grandchildren or others, there are several tax–advantaged ways to start putting aside money now. For example, when you contribute to a 529 Qualified State Tuition Plan or Coverdell Education Savings Account, interest earned on the accounts is tax–exempt when used for tuition, books and other qualified expenses.
The U.S. Securities and Exchange Commission's website provides information on 529 plans (www.sec.gov/investor/pubs/intro529.htm) and the IRS's site explains Coverdell accounts (http://www.irs.gov/taxtopics/tc310.html). Another website, www.savingforcollege.com, discusses these and other education financing methods.
Organ donation. Nearly 100,000 Americans are on organ-donation waiting lists. To be a donor, you must arrange it before you die. For details, go to www.organdonor.gov
Don't leave important decisions about how your assets will be distributed up to chance; and if you can afford to start sharing now, take advantage of available tax benefits.
Jason Alderman directs Visa's financial education programs. Sign up for his free monthly e-Newsletter at www.practicalmoneyskills.com/newsletter
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to your situation and about your individual financial situation.<< Back to Practical Money Matters
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