Trillions of dollars will transfer from one generation to the next in the decades ahead, but for some that inheritance may be a headache.
Timeshares
A timeshare is a long-term contract in which you agree to rent an annual trip to a resort or vacation property. These contracts last decades, sometimes for life, and are notoriously difficult to get out of.“If you pass away and your kids inherit the timeshare, they’ll be on the hook for the ongoing—and ever-increasing—contract costs,” says Neil V. Carbone, trusts and estates partner at Farrell Fritz in New York.
Collectibles
One advantage of bequeathing collectibles is it can help with taxes.The capital gains tax rate on collectibles goes up to 28 percent, significantly higher than the maximum 20 percent long-term gains rate on other investments. When you die, your heirs receive a step-up-in-basis, meaning when they sell they receive tax-free what the collectible was worth on the day you die.
There are risks. Your heirs could overlook or lose these valuable assets, especially if you’ve hidden them. And collectibles are tougher to value.
Guns
Guns can present considerable problems as inheritances. They aren’t the kind of property you can just hand over to another person without, in certain cases, the proper registration or permit. The rules vary significantly depending on your state of residence and the type of firearm.Operating Businesses
Most business owners spend a good bit of time on their succession plans. But not all.“It can be difficult for founders to let go,” says Connecticut attorney Marissa Dungey. But “if they don’t, a business will often lose value and may even collapse in the wake of the founder’s death.”
Vacation Properties
Inherited vacation properties are another potential financial and emotional landmine, especially if you’re leaving one to multiple family members.Disagreements can pop up over how often each can use the property, who owes what for the repairs, whether they should sell, and whether they should buy one of them out and at what value.
If you have a vacation home, start the inheritance discussion early with your heirs. You could put together and have them sign a written co-tenancy after death agreement, which would legally lay out the rights and responsibilities of each heir after they take ownership of the property when you pass away.
