You need to learn one word to make estate planning easier.
According to dictionary.com “Fungible” means “being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”
Cash is Fungible. The family bible is not. Suppose you have two bank accounts each with $100,000 in it. You have two children each entitled to $100,000. Do you think either will care which account they get or if they get half from each? Not likely. Physical assets like Mom’s jewelry, the family bible, the cottage, the business, the family home, and dozens of others have five problems.
You will generally not find fungible assets creating problems but some hard feelings have arisen from relatively valueless physical assets. I know of one estate where the heirs nearly came to blows over a $129 cuckoo clock.
Communication is important. Especially about heirlooms and tax consequences. Be sure your executors understand what you want and be sure the wording of your will reflects your thinking.
Sometimes it is worth doing a paper probate. Test your will. It is a little time consuming and it requires some values and tax cost bases that you might not have readily at hand, but you would be surprised how often problems show up. I have seen wills that left all assets to a wife who was not the person the person was presently married to. One inadvertently left a business to the business partner rather than to the family. Many estates have too few liquid assets to execute everything the people have in mind, once costs appear.
Cash short often results in sale of assets. Time consuming and costly. Does “estate sale” mean bargain to you? It does to everyone else. In Canada, losses resulting from such sales can only reduce taxes due at the tax[ayer’s death if the sale is completed within a year of death. From complex assets like a business and rental properties, that can be challenging.
A defense is to borrow and wait to get value. That tends to tie up the estate, sometimes for years and often assets like businesses deteriorate in value. Undesirable. The interest is not tax deductible and the security offered to the lender will be a multiple of the cash needed. It would not be unusual to tie up the entire estate to get one third of it cash.
Life insurance proceeds are fungible and they appear when they are needed. Absent extenuating circumstances, within 60 days of the death.
Many people don’t like the premiums but if they thoght of them as an option on cash to solve estate problems that can only be solved with more expensive methods, they would seem better. Besides, the person controls the result rather than forcing difficult decisions on the executors and heirs.
Most estate distribution problems can be solved if you begin to treat your estate plan as the plan that covers the time from now until a few months after death. Understand in a more complete context.
Aware – anticipate – organize – act. The key to success.
Think it through while you can still control the outcome.
I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.
Please be in touch if I can help you. firstname.lastname@example.org 705-927-4770