Not Your Starter-Kit Inheritance

By: Attorney Katherine S. Breckenridge, Esq.

Published November 3, 2019

Estate Planning: Not Your Starter-Kit Inheritance

“I don’t like hearing the sound of rain on a metal roof, or seeing the green, yellow, and red hues on the leaves,” said Nobody Ever. Both were giving me cause for thanksgiving on a quiet weekend morning, as fall was just making its entrance. All should have been well in my world. Then, came that thought – you know the kind that comes and interrupts, or perhaps better stated – comes and disrupts.

What was Heaven going to look like now – now that my earthly world looks a little different today than it did yesterday, and the day before? I kid you not. I let that consideration take hold in that moment of thanks and actually bring me to my knees. I wasn’t worried about my eternal placement. I truly worried for a moment about who would be there? Who would greet me? What would such inheritance look like?

I countered the thought by chiding myself, “O ye of little faith.” (Matthew 8:26 KJV). You have other matters with which to concern yourself, certainly you can leave ‘the Heaven piece’ to God; the inheritance He has planned for you is not a starter-kit.

Thus, I rearranged my focus back to that of thanksgiving and – as my mind usually does, I began to frame my thoughts in terms of estate law; the planning for the care of one while they are on this earth, the use of their assets for their care, and the ease of management and distribution of those assets upon their passing. (I know, such repertoire does not make for fun conversation during “happy hour;” that’s ok, I’ll remain in my office.)

Having just entertained thoughts on what Heaven was going to look like for me as some of my “earthly framework” has changed, the tenet of estate law on which I reflected was inheritance. Taking first the eternal inheritance promised, “In my Father’s house are many mansions: if it were not so, I would have told you. I go to prepare a place for you.” (John 14.2 KJV).

Though that promise stands on its own and needs nothing added to it or taken away from it, my human nature drew further assurance from believing the lyrics in Lauren Daigle’s song Trust in You, “There’s not a place where I’ll go . . . You’ve not already stood.” I mixed into that confirmation a quote I had seen that resonates with me, “Your name is being mentioned in rooms your feet haven’t yet entered.”

Concluding that I don’t need to continue wrestling with the windmill in my mind of what Heaven will look like, as I know the Grantor of such Life; Heaven shall be quite an inheritance. Thanksgiving.

What about the earthly format, the inheritance that is usually thought of as what assets one will receive upon the death of another?

Black’s Law Dictionary defines inheritance as, “an estate in things real, descending to the heir. . . Such an estate in lands or tenements or other things as may be inherited by the heir. . . An estate or property which a man has by descent, as heir to another, or which he may transmit to another, as his heir.”

Individuals leave assets to family members, loved ones, friends, strangers, charities, and even pets through trusts, last wills and testaments, survivorship language on jointly held accounts, the naming of beneficiaries on intangible personal property (such as cash, savings, wealth management accounts, and life insurance policies), recorded transfer on death deeds, and when one dies intestate – without a last will and testament, by default via the laws descent and distribution as set forth in the Code of Virginia.

One can inherit real property – land or land with improvement, intangible personal property – cash, savings, and wealth management accounts, and tangible personal property – items that one can touch; for example, a car, jewelry, and household effects.

A Trustor (also referenced to as Grantor or Settlor) is one who writes a trust – whether irrevocable or revocable. Those individuals who inherit through a trust are referred to as beneficiaries. A Testator is one who writes a Last Will and Testament. Those individuals who inherit through a Last Will and Testament are beneficiaries. When a person passes without a Last Will and Testament, she is referred to as the decedent of an intestate estate. Those individuals who inherit through an intestate estate are called heirs-at-law. Using a Transfer on Death Deed to pass an interest in real property, the Transferor (Grantor) is the decedent who passes ownership to a beneficiary.

Whether an individual passes her assets via the terms of a trust, a last will and testament, intestate, or a transfer on death deed, being vigilant about the effects of tax laws is prudent. As an estate planning attorney in the Commonwealth of Virginia, I often hear clients express concern about “death taxes.” The issue of “death taxes” does not discriminate between a trust, a last will and testament, or if a person passes intestate.

Presently, the Commonwealth of Virginia does not assess an inheritance tax or a state estate tax; the difference being that an inheritance tax is paid by the individual beneficiary and a state estate tax is paid by the estate.

For the year 2019, there is a Federal Estate Tax that is assessed on the estate of a decedent that exceeds $11.4 million per person. This amount is projected to increase in the year 2020 to $11.58 million per person. For 2019, the assessed tax is 40% on assets that exceed the $11.4 million. It is possible that if a spouse passes and does not utilize any of her Federal Estate Tax exemption, the surviving spouse could have a total $22.8 million Federal Estate Tax exemption. Such an aggregate is accomplished by the surviving spouse claiming the unused portion of the decedent spouse’s Federal Estate Tax exemption through what is called “portability.” Form 706 must be timely filed in order to preserve the unused portion of the Federal Estate Tax exemption for the surviving spouse.

The Federal Estate Tax exemption is promised to sunset at the end of 2025, with levels returning to pre-2018 exemptions, making periodic reviews of one’s estate planning prudent.

Even if the value of assets in one’s estate is not nearing the Federal Estate Tax exemption, the tax ramifications in the timing of giving of gifts may be very pertinent. When an individual is weighing whether to leave assets as an inheritance at the time of death or to make an inter vivos gift, it is important to consider the tax ramifications to both the giver and receiver. As previously mentioned, giving gifts at death can affect both the giver and the receiver, as the estate of a giver reaching the Federal Estate Tax exemption may be taxed and the receiver may be left with far less than had been anticipated. If a decision is made to convey an inter vivos gift, the receiver may lose the ability to take advantage of the stepped-up basis.

Controlling the inheritance that you leave for others is an action you can affect. Having a conversation with your estate planning attorney, CPA, and financial advisor about the assets within your estate and your intent for those assets is wise.

One dollar is as important to one person as another’s one hundred thousand dollars is to that other person. The person who does not ask the questions, does not put an estate plan in place, and who ends up paying a tax of 40% because of lack of planning (albeit in 2019 a healthy dollar threshold), may not have cause for thanksgiving; and, perhaps could force a family business to dissolve for lack of being able to pay the tax.

Sometimes having that one dollar, a roof over one’s head, and enough food to place on the table for that holiday is enough to make a person exclaim a thanksgiving.

In whatever situation you find yourself, plan well regarding the estate you have. However, know that the true inheritance you leave is not measurable in tangible gold, but in those intangibles left for others . . . the love, foundations of faith, guidance, encouragement – for those, truly are causes for thanksgiving.