Inheriting assets can be a mixed bag. Some can be a blessing, while others may bring unexpected trouble.
The total worth of an inheritance isn’t just about the money; it’s about what’s inside that counts. As trillions of dollars change hands from one generation to the next, it’s crucial to ensure your legacy doesn’t become a burden for your loved ones.
The truth is, not all assets are created equal when it comes to passing them on. Some can spark family disputes, come with hidden costs, or simply not be what your heirs desire. However, with thoughtful estate planning, you can steer clear of these issues.
Neil V. Carbone, a trusts and estates expert, advises starting your planning early to maintain family harmony and efficiency.
Carbone also stresses the importance of discussing your wishes with your heirs in person. This can lead to better understanding and respect, even if your choices aren’t their favorites. Additionally, consulting with a professional can help you align your assets with more suitable ones for inheritance.
According to Michael Romero, a wealth management expert, cash is often the best asset to leave behind, followed by brokerage accounts due to their easy valuation and division. Other assets tend to be trickier.
In this article, we’ll delve into six of the worst assets to inherit and offer guidance on how to manage them before you pass them on. We’ll also provide advice on handling unwanted inheritances and ensuring that your estate doesn’t add to your heirs’ grief.
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What you'll learn:
Owning a timeshare might seem like a dream, but it can turn into a nightmare for your heirs. These long-term contracts for annual vacations at resorts or vacation properties can stretch on for decades, even for a lifetime, and they’re infamously challenging to escape. So, before passing on your timeshare, here’s what you should know:
Ongoing Costs: If your kids inherit your timeshare, they’re in for a financial commitment. They’ll be responsible for paying the ongoing and ever-increasing contract costs. Some sellers even encourage buyers to add their young family members to the deed, which can be a trap.
Decision Time: Neil V. Carbone advises against leaving this decision to your kids in advance. Instead, let them decide after your passing whether they want to take over the contract. They can formally decline it through a written document sent to the executor of your estate and the timeshare company, even if your will says otherwise.
Avoid Using It: If your heirs are uncertain about inheriting the timeshare, they must refrain from using it, like taking a final memorial trip. Using it could complicate the disclaimer process or be seen as taking over the contract.
Getting Rid of It: If neither you nor your heirs want the timeshare, try getting rid of it while you’re alive. Some companies might buy it back, or you can attempt to sell the contract to someone else. There are also specialized timeshare exit companies that can help you escape the arrangement. Don’t hold out for a big profit; sometimes, getting rid of it at any cost is the best option.
Abandonment: If you decide to abandon your timeshare, the company might threaten legal action, but they often don’t follow through. Most companies won’t take legal steps against elderly customers, especially if the timeshare is paid off, and seniors usually aren’t overly concerned about their credit rating.
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Having a collection of valuable items like gold coins, rare stamps, or exquisite artwork can be a source of pride. The thought of passing down these treasures to your loved ones, along with potential tax advantages, can be enticing. But before you make collectibles part of your inheritance plan, consider the complexities involved:
Tax Benefits: Leaving collectibles as an inheritance can indeed have tax advantages. The capital gains tax rate on these items can go as high as 28%, which is notably more than the maximum 20% long-term gains rate for other investments. However, when you pass away, your heirs receive a “step-up-in-basis.” This means they can sell the collectibles for their current value on the day you passed away without paying any capital gains tax.
Risks and Challenges: Valuable collectibles come with their own set of risks. First, there’s a higher chance that your heirs might overlook or misplace these assets, especially if you’ve hidden them. It’s crucial to inform your heirs about the location of these items and their approximate value. An appraisal is best, but a rough estimate will suffice.
Valuation Difficulty: Unlike a bank or brokerage account with a straightforward balance, collectibles are trickier to value. Your heirs may need to consult a specialist or dealer to determine their worth. Be cautious because not all dealers have your heirs’ best interests in mind. It’s a situation where they could be easily taken advantage of.
For example, Michael Romero shared an anecdote about a client who had a collection of violins. He took one to a dealer, thinking it might have some value. The dealer declared the violin worthless but valued the bow at $20,000.
If you do plan to pass on valuable collectibles, ensure your heirs know where to find them, what they’re worth, and suggest reliable dealers they can work with when the time comes.
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Guns may seem like a unique heirloom, but they come with considerable challenges as inheritances. You can’t just hand over firearms to your heirs without following proper registration or permit procedures. The rules surrounding gun inheritances vary widely depending on your state and the type of firearm.
For instance, in New York, the executor of your estate can temporarily possess your guns for up to 15 days without facing criminal penalties. However, this is a very short window, especially considering that the will may not have gone through probate at that point.
Typically, heirs or the executor will contact the police to inventory and store the guns during probate, a process that can last up to a year.
It’s important to note that certain firearms, like fully automatic weapons and short-barreled rifles or shotguns, cannot be registered after the fact or passed down to heirs if they were not properly registered during the owner’s lifetime. They must be abandoned.
If you want your family members to inherit your guns, it’s essential to start planning early. The potential heir may need to obtain the necessary firearm permits to legally accept the property.
To navigate these complex laws, you can refer to resources like the Giffords Law Center to Prevent Gun Violence or the National Rifle Association Institute for Legislative Action, which provide state-specific information.
Another option is to collaborate with a licensed gun dealer who can store your firearms and facilitate their sale after your passing. The key is to plan ahead and avoid a situation where guns are left unattended in your car trunk or garage, which not only complicates matters for your heirs but also poses safety risks.
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Running a business can be all-consuming, and many owners don’t think about what happens to their company after they’re gone. However, assuming that a business can be passed on as easily as a brokerage account or a classic car is a risky move.
Connecticut attorney Marissa Dungey, a partner in Dungey Dougherty, warns against this idea. She acknowledges that it can be tough for founders to let go, but holding onto the reins can lead to a decrease in the business’s value or even its collapse after the founder’s passing.
Dungey advises that if your family members aren’t realistically equipped to continue running the business, it’s wise to plan for its sale while you’re still alive. This way, you can oversee a smooth transition, which is crucial for the business’s ongoing success and for maximizing its sale price.
If you have partners in the business, it’s essential to establish a “buy-sell” or shareholders’ agreement that outlines what happens in the event of a partner’s death. These agreements are typically negotiated between business partners and often include provisions for an orderly buy-out funded, at least in part, by life insurance upon an owner’s passing.
Even if family members are poised to take over the business, conflicts can still arise, especially when some are actively involved, while others are passive owners. The active participants may want to grow the business, while the passive owners might prefer to cash out.
In conclusion, Dungey emphasizes that proactive planning is the key to mitigating conflicts and ensuring a smooth transition for the business.
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5️⃣ Holiday Homes
Inheriting a vacation property might sound like a dream, but it can quickly turn into a nightmare, especially when multiple family members are involved. “Kids behave when the parents are still alive, but once they’re gone, that’s when the fighting really starts,” warns Neil V. Carbone. “I’ve seen siblings stop speaking to each other due to fights over an inherited vacation property.”
Disagreements can arise over various issues, including usage rights, repair costs, selling decisions, and buying out a share, especially if one heir lives far away and doesn’t want their part.
Even if everyone gets along, vacation properties come with significant expenses like maintenance, property taxes, insurance, and any remaining mortgage. These costs can outweigh the property’s value for your heirs, particularly if it’s undeveloped land or has environmental problems.
To navigate this complex situation, start discussing the inheritance of your vacation property early with your heirs. Do they even want it? If they do, can they agree on the terms? Consider creating and having them sign a written co-tenancy agreement, legally outlining each heir’s rights and responsibilities after they inherit the property.
Marissa Dungey recommends leaving liquid assets to cover ongoing costs associated with the vacation property so that no one has to contribute out of pocket. This includes expenses like HOA fees, taxes, insurance, and maintenance, such as landscaping when the property is vacant.
If reaching a consensus becomes too complicated and your heirs can’t agree, selling the property might be the best solution. While you’ll owe capital gains taxes on any appreciation (since it’s not your primary residence), this expense could be a worthwhile investment to prevent a significant family dispute.
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6️⃣ Personal & Household Items
Family disputes don’t always revolve around rare collectibles. According to Michael Romero, arguments can erupt over any type of physical property, especially when it holds sentimental value.
Household items and personal possessions often carry emotional significance that can escalate disagreements. The challenge lies in dividing these assets, such as deciding who inherits Mom’s wedding ring when there are multiple heirs involved.
Valuing physical property can also be tricky. People tend to overestimate the worth of items like jewelry and antiques, leading to unreasonable expectations. However, the reality is that jewelry can be expensive to buy but loses its value quickly when sold. Additionally, antiques may not be as popular as they once were.
Conversely, some items may turn out to be unexpectedly valuable. For example, Romero had a client with a collection of women’s designer suits that fetched a considerable sum when sold. If they hadn’t explored their options, they might have given everything away.
To prevent potential trouble, it’s essential to plan for the distribution of your physical property in advance. Clearly designate who will receive specific items to avoid conflicts. If possible, consider selling what you no longer need while you’re alive. This way, you can leave behind the simplest and most effective inheritance of all: cash.
➤ How to Make Sure Your Will is Appreciated
Discussing your will and estate plans can be uncomfortable, but it’s essential to avoid surprising and disappointing your beneficiaries after you’re gone. T. Eric Reich advises having open and honest conversations about your assets with your loved ones in advance. This communication can help prevent complications and conflicts down the road.
Reich emphasizes that if your heirs express disinterest in inheriting specific property, you should consider selling it while you’re alive. This approach can be more straightforward and avoid triggering capital gains taxes. It also ensures that your heirs receive assets they genuinely value.
Marissa Dungey offers additional insights to promote family harmony and effective estate planning:
- Consider Timing: Instead of selling assets during your lifetime, include directions in your estate plan for your executor or trustee to sell assets during the estate administration. This strategy can take advantage of the step-up in tax basis upon your death and make the costs of sale tax deductible.
- Anticipate Value Disputes: Recognize that the value of certain property can be a point of contention. Estate values, insurance values, and sentimental values may differ significantly. Dungey recommends obtaining appraisals from reputable appraisers experienced in valuing the specific type of asset to avoid disputes.
- Leave a Letter of Wishes: Beyond the terms of your will, consider leaving a letter of wishes. This document can guide your loved ones on your preferences and intentions. Beneficiaries are often more likely to honor a decedent’s wishes, even if they aren’t interested in a particular asset but value its associated worth.
In conclusion, open communication and thoughtful estate planning can go a long way in ensuring that your will is appreciated, reducing conflicts among your beneficiaries, and promoting family harmony during a challenging time.
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➤ How to Get Rid of Unwanted Assets
So, you’ve unexpectedly inherited something you have no use for, like a timeshare in a distant location, an antique firearm, or a grand piano that doesn’t fit your apartment. What are your options, and do you have to accept this inheritance?
The good news is that you can refuse or disclaim an inheritance, but it’s essential to understand the implications. According to Marissa Dungey, disclaiming an inheritance means it passes to the next eligible recipient in line.
However, this choice doesn’t relieve the executor of the estate from dealing with the asset, especially if probate has already been initiated. A comprehensive will should grant the executor the power to abandon estate property, abstain from associated fees, or even allow property to be foreclosed upon or sold for a nominal sum.
T. Eric Reich suggests considering alternative solutions based on the nature of the property. For instance, some clients have explored donating unwanted assets, especially property or collectibles.
Reich recommends selling a collection as a whole to a dealer, even if the price obtained is lower than the retail value. This approach saves you the hassle of selling individual pieces, particularly if you’re not well-versed in their value.
Ultimately, when faced with an unwanted inheritance, it’s essential to weigh your options carefully and consult with professionals to navigate the best course of action that aligns with your circumstances and preferences.
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➤ Final thoughts
Inheriting assets can be a double-edged sword. While it’s a testament to the love and trust of those who leave them behind, not all assets are created equal. Some can lead to unintended complications, family conflicts, or financial burdens.
However, with careful planning, open communication, and thoughtful consideration of your options, you can navigate the inheritance maze more smoothly. Remember that discussing your estate plans with your loved ones is crucial to ensuring they understand your wishes and preferences.
Whether you’re contemplating leaving an inheritance or find yourself inheriting assets you don’t want, seeking professional guidance can be invaluable. Estate planning experts can help you make informed decisions, prevent potential conflicts, and ensure that your legacy is a source of comfort and stability for your heirs.
In the end, while the road to a seamless inheritance may have its twists and turns, proactive steps can help you and your loved ones avoid any bumps along the way.
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