Your Estate Doesn't Pass Through A Hallmark Card

Cash is a common gift given for many celebrations, such as birthdays, graduations and weddings. There are different reasons to gift cash. For one, there aren’t strings attached. We trust that the recipient has plans for the gift. For some, it's simply easier to give cash than to identify a more specific gift. 

But what if once the birthday card was opened the recipient owed the IRS a portion of the gift? Would you still give the gift in that fashion? Or would you try to find another way? What if a wedding gift was intercepted by the State as part of a claims process that might take months, just to ensure all other settlements in your life were made before someone else could cash your check? Finally, do you ever write a check made payable to “Next of Kin” even though you know you’d like it to be given as a graduation gift to your grandchild? Would a bank even cash that check if it were made out to “Next of Kin?” 

You might be thinking, “Yeah, but that’s not how it works!” And you’d be right. Our cash gifts aren’t taxed1, or intercepted and we write checks to a specific person or persons, not “Next of Kin.” But the truth is, by not having proper documentation as part of an estate plan, these seemingly faux cash gift scenarios become reality. Because estates don’t pass like cash inside a Hallmark card – it’s unfortunately not that simple. 

I don’t think anyone goes through life wondering how he or she can ruin their finances or make their adult children miserable while settling an estate without a plan. Yet, by not planning estates, you and/or your aging parents are forced to accept the results of these faux cash gift scenarios.  

First, the IRS has a rulebook that’s worth knowing. Depending on the type of assets you have (a retirement account, a house, some cash in the bank, an old stock?) your heirs may be responsible for income tax on that which you leave behind at death. This would be in addition to the potential taxation of your whole estate at the federal and state level. We feel it’s prudent to understand what these bills might look like for your heirs as of today, so you can plan ahead for how to handle them, or even potentially reduce them. 

 Next, where are your accounts held? Perhaps there are accounts in more than a dozen institutions? I’ve seen many estates with overlap in holdings and problems with how accounts are titled. Some have no beneficiary elections at all! An estate like this will be subject to probate and is sure to cause heartache, problems and delays when it comes time to settle up, when the cost and time spent on the probate process could be easily avoided with a little proactive planning. 

 Lastly, your estate plan should be clear, naming specific people and specific wishes. Do you have a will? How old is it? Even more problematic is when the children expected to serve upon incapacity or deaths don’t know what the plan is or who will be in the roles of executor or trustee; much like the scenario of writing a check to "next of kin." Some elderly people feel that they’ll insult the children not named as trustee or executor, and they list all of their kids as the people to settle the estate. This could cause problems too.  

 Start by finding out what written plan you do have, if any. And not just for you. If you’re concerned about your parents, insist on copies of their documents, especially if you are named in a role to assist with the estate settlement. If the documents are severely out of date, find an estate planning attorney to draft new documents.  Make sure that it is an attorney where estate planning is a specialty, not just another service that they can help with.  The goal should be to save taxes, simplify distribution and avoid probate and other time consuming or expensive settlement methods.  

 The concept of giving a cash gift for a celebration is a fine one, while you’re alive. But don’t make the mistake of thinking that a couple envelopes will be sealed to your heirs with a sweet message and a check when you pass away. In the absence of a plan, there are other players involved in how your estate gifts will be left. Define the process! Work on updating your plan today. 

1There are annual gifting limits prior to gift tax returns needing to be file. The 2023 gifting exemption is $17,000 to any one individual in any one given year. 

Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.  Tracking # T005775