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A-Z Estate Planning

Posted on April 26, 2018 in Firm News

J – “J” stands for Joint Ownership. A married couple who lives in a community property state will enjoy a step up in basis for a home they own jointly. For example, if a couple pays $100,000 for a home, and when the first spouse dies, it is worth $200,000, the living spouse’s new basis in the home is now $200,000.  If she later sells it, and for some reason tax is owed, her taxable gain would be calculated using the $200,000 stepped-upped basis, thus saving money.  If however, a home is owned jointly by two people not married, the survivor could inherit the property under Nevada law without passing through the probate process: however, the survivor’s basis would remain the original $100,000 from the earlier example; there would be no step-up in basis. This unfortunate outcome could be avoided with planning.

K – “K” stands for 401(k).  The term “401(k)” is a general term many people use to refer to their widely known by many people as the retirement program they have at their workplace.  The term itself is actually a section of the Internal Revenue Code that regulates employer-sponsored retirement plans that can qualify for special tax treatment if conducted according to the IRS Code and Regulations.  Your 401(k) retirement plan can play a very important role in your estate plan, but if handled improperly can have negative tax consequences for your beneficiaries.   For example, it is generally not a good idea to name your trust as a beneficiary of your 401(k) plan, but rather, simply name direct beneficiaries of your plan, and allow your trust to operate separately and control its assets separately.

L – “L” stands for LIMITED LIABILITY COMPANY (LLC).  Many individuals pass away as owners of an interest in Limited Liability Companies.  Depending on the operating agreement of the LLC, some or all of your interest in the LLC can be funded into your trust during your life.  There are certain procedures both at the LLC level and, perhaps, at the state level that will need to be followed to ensure this is done properly and with the greatest effect.