Key Steps in Asset Distribution

Family looking at computer

Who gets what?

It is common for individuals to arrive at our law offices wanting to "finally get our estate plan done" and focusing on such components as establishing wills and trusts, identifying trustees and beneficiaries, and setting up power of attorney and medical directives. Yes, these are all important parts of an estate plan — but they often lose sight of a critical aspect (and perhaps the most difficult) of estate planning - who gets what!

More than just "splitting it up"

It can be enjoyable watching your portfolio of investments and other assets grow over time, building into what may be a sizable fortune. You've worked a lifetime to nurture and build these assets, so why not take the time to make certain your heirs benefit as you intend? Have you considered that planning for these assets after your passing may be far more important than just "splitting it up"?

A key aspect of our estate planning is working with our clients to identify assets, specify who will get them, and achieve their goals in distributing each asset to specific heirs.

What's in your portfolio?

The first step is to identify and classify your assets. This is necessary in order to know how to properly allocate those assets after your passing. These assets would include business ownership, real estate (primary residence, vacation homes, and investment properties), financial institution investments (i.e., stocks, bonds and annuities), insurance, cash and savings accounts, foreign assets, and personal property. It isn't unusual for clients to forget about a certain real estate holding or jointly-held business enterprise.

What are your goals?

This is clearly tailored to each client and requires careful consideration. Perhaps your entire adult life you've been building a business, investing in the stock market, buying real estate or obtaining other assets, all done in order to provide for yourself and family. However, when it comes to distributing those assets to beneficiaries it requires a different mindset. For example, is it important to you that a multi-generational business stay in the family? Further, if equitable economic distribution is a goal, this can be a complicated step, especially with different asset classes, liquidity, taxation, and short- and long-term asset growth.

Considerations in asset distribution

  • What is the short- and long-term value of each asset? This can be complicated but may be key to your goals. Consider if you were to designate your oldest child to receive the family business (which may generate considerable annual income but could be difficult to sell), while the youngest child receives your IRA/stock market investments (which must be distributed over 10 years per the Secure Act of 2019, and subject to taxation). Or giving one child a family heirloom vacation home and another child a rental property (i.e., the former has annual costs and is not to be sold, while the latter can be sold and likely generates income). Each scenario requires careful consideration.
  • Are some assets costly to maintain? This would include maintenance and property management for real estate, fees for investment management, and professional managers for businesses. This evaluation can be important to a surviving spouse and heirs; can they afford it and does it make sense for them?
  • Are some assets better held by one heir vs. another? If your estate is simply an even sell-and-split of all assets, this is a simple task. Yet quite often assets are distributed differently. Is it best for a certain child to own your business? Should another child be given illiquid assets because he/she would spend cash to quickly? How to designate real estate if your heirs live across the country and may not want it? Do certain assets hold sentimental value?
  • What about liquidity and taxes? Liquidity is a consideration across all asset classes. For example, a rental property may be illiquid vs. cash but your heirs can keep it as an investment (which may mean relatively low near-term income) or sell it and reap the proceeds. Keep taxation in mind when gifting certain assets to specific heirs, as IRA accounts are subject to taxes.

Attorneys who understand the importance of your assets

At Mortensen & Reinheimer, PC we realize that your assets represent years of hard work and can hold not only financial but also sentimental value. We know that our clients may have specific goals for certain assets and beneficiaries and need legal guidance in how to best achieve these objectives. We look forward to helping you with this important process! Please contact us at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.

About the author:

Tamsen R. Reinheimer
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at tamsen@ocestateplanning.net.

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