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Understanding assets for estate planning and management

One of the most important estate planning issues for Colorado residents may be having enough money saved to address living expenses during retirement years. Without sufficient funds, there could be the need to get rid of some assets in order to handle the costs of living. Whether or not enough money has been saved, however, an estate plan is important for prescribing how one's remaining assets will be distributed after death. With a revocable trust, these directions can be changed as often as necessary to account for changes in holdings based on the liquidation of bad assets or the decrease in value of a good asset.

Some assets offer more value to heirs than others. Some assets provide more benefit to the the holder who liquidates them. For example, depreciated securities offer minimal value to heirs, especially when compared with the tax benefits available to the holder if those securities are liquidated. A loss can be used to balance up to $3,000 of normal income per year if no capital gains exist. If there are also capital gains, the losses experienced through the sale of such assets can be used to offset those gains. Whether extra money is needed or not, disposing of these assets can be beneficial.

The lighter the tax burden that an asset carries, the longer it may be beneficial to keep that holding in one's portfolio. Stocks that have appreciated in value are good to keep as their basis is stepped up to their fair market value on the date of the owner's death, thereby eliminating any capital gains tax on that appreciation for the beneficiary. Cash and bonds are better to use because they appreciate minimally.

An estate planning attorney might provide helpful insight for managing assets in relationship to expenses. Additionally, this may provide regular opportunities to review an estate plan to determine whether any holdings have changed in value enough to warrant liquidation.

Source: Forbes, "Estate Planning: A Ranking of Good Assets and Bad Assets", William Baldwin, August 25, 2014

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