Lesson from Abstract Artist: Have Definitive Estate Plan

Parents want the best for their children, and when they become grandparents the same applies to the grandkids. Thoughtful estate planning is one of the best ways to help and protect loved ones into the future. Although New York does not have an inheritance tax, donors can make important decisions to preserve their assets from federal taxes.

Protecting a child or grandchild's inheritance may not be an articulate expression of love and affection, but it is an extremely practical and logical way to help kids and grandkids succeed. People can avoid significant tax obligations by thinking of their beneficiaries while making financial decisions about estate administration. An inheritance that is subject to burdensome taxes can be undesirable, particularly if there are ways to avoid the taxes.

One way to shield beneficiaries from taxes is to carefully consider whether it is a gift or an inheritance. Property that has appreciated in value will be taxed at a much higher rate if donors give it as a gift instead of leaving it as an inheritance. This is because the capital gains tax will be applied to the real estate's increase in value if it is given as a gift. There are many other ways to ensure beneficiaries will pay only minimal federal taxes on their inheritance.

Pablo Picasso provides a lesson on what not to do for heirs: nothing. The artist died intestate, meaning he did not have a valid will. When his heirs gave his artwork to the French government they paid high estate taxes, even though they could have profited from selling the works privately.

An estate plan maybe could have helped the heirs avoid such a loss. Picasso was an artistic master, but his poor estate planning should not be emulated.

Source: CNBC, " Spreading Around Your Retirement Wealth Tax Free," Michelle Lodge, May 29, 2012

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