What are good vs. bad assets I can leave my family?

There is a well-known saying that when you pass away, there will be three primary beneficiaries of your estate: 1) Your Family; 2) The Government; and 3) Your Favorite Charities. How much each of those three entities receives is up to you and your use of effective estate planning!

There are horror stories of very successful people leaving their families with enormous tax bills because of a poor estate plan. As an organization that cares for its donors and volunteers, we encourage you to consult your financial and legal advisors to develop the best plans for your family and favorite non-profit organizations.

The ‘good’ versus ‘bad’ assets highlighted below are simply based upon the taxes your family may encounter once they inherit your estate. This information is provided to make you more knowledgeable about this matter and help generate conversations with your professional advisors so a better, more appropriate plans for your estate can honor your intent and wishes.

“Good” Assets

If your entire estate totals less than $11,000,000, the following assets could pass tax-free to your beneficiaries:

• Cash, Checking Accounts, Savings Account
• Money Market Accounts or CDs
• Real Estate
• Life Insurance
• Brokerage Accounts including stock, mutual funds or bonds
• Roth IRAs
• Trusts

“Bad” Assets

These are assets where your beneficiaries may have to pay substantial taxes:

• Retirement Accounts (IRAs, 401Ks, 403b’s)
• Pension Plans

Example of an Estate Plan Considering Bad vs. Good Assets:

Mrs. Generosity decides to leave $100,000 to Boys & Girls Clubs of Central Florida in her Will. At her passing, her assets include a home valued at $250,000, $50,000 in stock, $25,000 in savings and $400,000 in her IRA.

Example 1
Because Mrs. Generosity didn’t effectively plan her estate and how $100,000 would pass to BGCCF, the family had to make decisions that resulted in donating all the “tax-free” assets of stock and savings to BGCCF. To come up with the remaining $25,000, the family had to make a withdrawal from her IRA (that included some taxes and possible penalties) or use the home as collateral for a loan or sell the house.

Example 2
Mrs. Generosity adds Boys & Girls Clubs of Central Florida as a partial beneficiary to her IRA account for $100,000 in her estate plan. For safe measure, Mrs. Generosity includes a provision in her Will that states any charitable gifts should come from her IRA before other assets are used. At her passing, the home, savings and stock all go to her family with no tax penalties. Since her IRA account was reduced by $100,000, her family will pay less income tax during the timeframe withdrawals are required.

With some simple planning and a little strategy, Mrs. Generosity gave the most impactful and largest gift she ever gave to Boys & Girls Clubs of Central Florida and reduced the tax burden and other major headaches for her family.