Kiplinger’s recent article entitled “5 of the Worst Assets to Inherit” says that if you’re planning to leave an inheritance to others, you should take care in what you leave them. Some assets can cause problems. However, you can prevent problems with thoughtful estate planning and the help of an experienced estate planning attorney.
Let’s look at five of the worst assets to inherit and what you can do to help manage them before you pass away:
Timeshares. A timeshare is a long-term agreement where you get to use a vacation property. These contracts are notoriously difficult to end. If you pass away, and your children inherit the timeshare, they may be responsible for the ongoing contract costs. Allow your children to decide at your death whether they want to take over the contract. They can refuse to accept it then—even if your will left them the timeshare—by making a formal disclaimer of the asset.
Potentially Valuable Collectibles. This may be a coin collection, rare stamps, or a piece of artwork. Note that the capital gains tax rate on collectibles goes up to 28%, much higher than the maximum 20% long-term gains rate on other investments. When you die, your heirs receive a step-up-in-basis, meaning when they sell they receive tax-free what the collectible was worth on the day you die. Even so, there are some substantial risks to leaving valuable collectibles as an inheritance. One problem with collectibles is that thy may be difficult to value. If you have any valuable collectibles, tell your heirs where they’re located, their estimated value and the dealers they should work with after you’re gone, so they don’t run into trouble.
Guns. Firearms can also get complicated as an inheritance because of the amount of regulation. They aren’t the type of asset that you can simply hand over to a person without the proper registration or permit. There are a number of state and federal rules, depending on your state of residence and the type of gun.
Vacation Properties. Inherited vacation properties can be a potential financial and emotional problem, especially if you’re leaving one to multiple family members. Disagreements can arise over how often each can use the property, who owes what for the repairs, whether they should sell and whether they should buy one of them out and at what value, especially if one heirs is living far away and doesn’t want their share. Even if the siblings are on good terms, a vacation property has expenses, like maintenance, property taxes, insurance and any remaining mortgage. These costs could outweigh the value of the vacation property to your heirs. If you have a vacation home, begin these discussions early with your heirs and determine if they even want the property and, if so, can you get them to agree on the terms.
Any Physical Property (Especially with Sentimental Value). Disagreements among heirs can happen over any type of physical property, like a favorite chair or Mom’s silverware. These sentimental items can be tough to divide. Moreover, it’s harder to tell what some of these items are worth. Avoid these issues and start planning the distribution of your physical property ahead of time. It is important to be clear on who will receive what to prevent arguments.
Reference: Kiplinger (Sep. 14, 2021) “5 of the Worst Assets to Inherit”
The IRS said that Aretha Franklin’s estate owed more than $7.8 million in unpaid income taxes, interest and penalties from 2010 to 2017.
The Detroit Free Press’ recent article entitled “Aretha Franklin estate reaches deal with IRS to pay off claimed $7.8 million tax debt” reports a big breakthrough. It seems that Franklin’s four sons and the IRS have reached a settlement that would expedite the payment of the remaining tax burden and allow her sons access to some of the money from their late mother’s fortune.
Aretha’s heirs have not yet inherited anything from the estate because of the IRS situation.
In a petition filed February 19 in Oakland County Probate Court, the estate said the proposed arrangement includes an immediate $800,000 payment to the IRS. This is despite the fact that the estate continues to question the total tax bill owed.
Since her death, Franklin’s estate has been steadily paying on the tax debt, as well as the constantly growing interest, as it appeals the IRS’s claimed total. As of December 2020, the balance was $4.75 million.
The new petition says the final IRS bill will be determined “by agreement or litigation.”
The agreement between the estate and the IRS details the way in which Aretha’s posthumous revenue will be distributed, until the tax debt is resolved. Backdated to January 1 of this year, it includes new income from song royalties, licensing agreements and other money streams. This agreement states that 45% of quarterly revenue will go toward the existing IRS balance. 40% would also be earmarked for an escrow account to deal with the taxes due on the newly generated income. The other 15% of revenue would be used for managing the estate.
The agreement also provides an immediate $50,000 payment to each of Franklin’s four sons and approves quarterly cash payouts to them. This proposed deal, authorized by 10 attorneys representing the sons, was submitted to the court by attorney Reginald Turner. The Detroit lawyer and incoming American Bar Association president was appointed last year as temporary personal representative of the Franklin estate. The agreement has to be approved by Judge Jennifer Callaghan to be executable.
Franklin died in August 2018, after a long battle with cancer.
Reference: Detroit Free Press (March 1, 2021) “Aretha Franklin estate reaches deal with IRS to pay off claimed $7.8 million tax debt”