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Strategic estate planning

A recent article on estate planning may interest California residents. While some individuals who are close to retirement have enough wealth to live comfortably, there may be certain circumstances where a person who is building an estate plan requires additional liquidity.

Deciding which assets should be sold, and when, can be critical to maximizing wealth left to heirs. Taxes can be a driving factor behind such decisions. Many states do not have an estate tax, and the federal estate tax applies to amounts greater than $10.6 million for couples, meant that for most estates, the tax is a non-issue. However, income and capital gains taxes can affect the value of assets to heirs and beneficiaries.

Generally, the first assets that should be used are depreciated securities, allowing the seller to claim a capital loss deduction. Heirs would be unable to take advantage of this deduction because of the rules regarding tax basis for changes in an assets value after the transfer is made. Bonds that have only mildly increased in value are also some of the assets that might be sold early as well. Next are IRAs that are taxable on withdrawal.

Stock that has mildly appreciated in value would be the next best asset to sell, which are followed by Roth IRAs because Roth contributions are already taxed and the withdrawals are tax-free. Finally, highly appreciated stock, collectibles and depleted partnerships should be the last assets liquidated due to the tax benefits that might occur when they are passed to heirs.

Because of the complexities of asset valuation and tax law, obtaining advice from an experienced attorney may make a significant difference in the value of assets left to heirs. Estate planning may require a thorough understanding of strategies that attempt to maximize wealth preservation and avoid unnecessary taxation.

Source: Forbes, "Estate Planning: A Ranking of Good Assets and Bad Assets", William Baldwin, August 25, 2014

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