On this episode of THE FINANCIAL COMMUTE, host Chris Galeski invites Wealth Advisor Beau Wirick to discuss assets that may or may not be beneficial to inherit.

Chris and Beau agree that a Roth IRA is the best type of account to leave heirs as money grows tax-free, and withdrawals are tax-free. Brokerage/non-retirement accounts are also beneficial, as the heir can sell shares without paying capital gains taxes on them. Traditional IRAs may not be as advantageous because distributions are taxable, and new legislative changes under the SECURE Act forces heirs to withdraw the entire balance of the account within 10 years of the original owner’s death. This may cause issues with higher tax as each sum of money that needs to be withdrawn would be higher than if the heir could take the money out over a longer period. 

When it comes to real estate, properties with high maintenance costs may burden heirs. It may be wiser to invest in real estate funds that can be passed on. 

Businesses are also a potentially complex asset to leave to an heir. It is important to create a buy-sell agreement, a legally binding document that outlines how to distribute the shares of a departed or deceased partner amongst other partners and beneficiaries; this could save heirs from headaches and conflict. Another option is to consider selling the business altogether if the owner’s death is anticipated. 

When it comes to Health Savings Accounts, passing it to a spouse allows tax-free use for their medical expenses. However, leaving it to anyone else could result in that account being considered income in the year it is received, thereby boosting them into a higher tax bracket. Furthermore, anyone besides the spouse cannot use the tax advantages for their own healthcare. 

It is crucial to have these conversations with your wealth advisor to examine your individual situation and what makes the most sense for you and your beneficiaries. 

Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.