Dividing Your Estate Equally – What to Consider When Doing So
When it comes time to create an estate plan, parents or grandparents often want to divide
their estate assets equally among children and/or grandchildren. Money, of course, is easy to
divide; however, other estate assets can be more complicated to divide equally. In fact, it can
be far more complicated than you realize when you factor in important considerations like
estate taxes and future appreciation.
An easy way to explain the difficulty is by example. Imagine that you own a home where you
live, an investment property, and an IRA. Both your own personal home and the investment
property are worth $300,000 currently as is the IRA. If you have three children then you may
think that giving each child one of the assets will provide for an equal distribution, but that may
not actually be the case. In reality, the child who receives the personal residence will come out
ahead of the other two.
The beneficiary who receives the personal residence can sell the home and convert it to cash
without paying taxes. The investment property beneficiary, on the other hand may have to pay
taxes if the property is sold. The child who receives the IRA will also have to pay taxes when the
funds are withdrawn. Assuming a 25 percent tax bracket, both the investment property and IRA
assets are now worth $75,000 less.
Furthermore, the IRA will not appreciate whereas the real properties likely will. The home will
likely appreciate at a modest two to three percent per year while the investment property
could appreciate more. In addition, the investment property is earning money if rented out
from the moment the beneficiary receives the property, making it more valuable.
As you can see, the three assets that are currently of equal value will potentially be very
different in their future values. Gifting assets of equal values to children or grandchildren is
possible; however, you should consult with both your financial planner as well as your estate
planning attorney in order to accomplish your goal.
Experienced estate planning attorneys Roseville CA of the John Rogers Burk, A Law Corporation offers
estate planning and business planning resources to residents of Roseville CA. To learn more about these
free resources, please visit www.roseville-estate-planning.com/ today.