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Some inherited assets incur different tax treatment

Evaluating retirement needs against estate planning may require a balancing act. Potential estate assets may include retirement accounts, real estate and investments or securities. Yet with an array of estate planning instruments, such as wills and revocable and irrevocable trusts, an individual may not know where to start.

For example, an individual may be concerned about having enough liquidity for retirement. At the same time, he or she may want to ensure that certain assets will pass to designated beneficiaries. In addition, many American families go through a divorce, and when a divorced parent remarries, there may be unintended consequences for the children from the previous marriage. A parent may also have concerns about designating a child as a beneficiary if the child is going through a divorce.

A recent article provides advice about protecting adult children’s inheritances. First, an attorney that focuses on estate and trust planning will also know the effect of divorce and marital property claims upon potential estate assets. In Florida, inheritances and gifts are generally considered separate property that is not subject to equitable distribution.

However, a beneficiary should take care to avoid commingling that asset, such as using it to buy a house or other property during the marriage. An inheritance typically keeps its status as separate property if it has been kept in a separate bank or brokerage account and titled solely in the beneficiary’s name.

To provide additional safeguards, a parent may leave assets to children in a trust, which could even be referenced within an existing will or revocable trust. A spendthrift clause in a trust may also prevent a beneficiary from transferring away his or her interest. 

Source: The Star-Ledger, “Your Money: Protecting adult child’s inheritance from ugly divorce fight and poor money decisions,” Karin Price Mueller, May 12, 2014

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