Inheritance of Two Million Dollars is no bed of roses
A month after the passing of a family member, two other family members acting as the Executors, also the only two beneficiaries of the Estate came to see us about the share portfolio of the deceased. A quick glance of the share portfolio suggested that there were significant profits attached to the shares. It was a fair assumption that the various bank shares were from the original listing at an extremely low price compared to the current share price. This meant a very large capital gain would most likely have been attached to the shares. Following a discussion in general terms about the need to plan for the capital gains tax liability contained within the shares we received the following comment from the two family members who inherited the shares;
‘We met with the share broker a week ago and instructed them to sell ALL the shares.’ Our response to them was ‘why would you do that?’ Their answer was…. ‘oh, we just thought we would like to have the funds paid in cash to us.’
Our comment was; ‘Well you just crystallised a capital gain of over $400,000 which just cost the beneficiaries being
yourselves a $100,000 tax bill which would be payable by the estate or indirectly yourselves.’ The shares you sold were paying dividends of 4% to 5% this rate is not achievable through bank interest earnings at present. In addition to this disadvantage the distribution of funds to yourselves from the estate means you will both now completely lose your Veterans Affairs pension as your assets will be too high.
The strong message here is get advice before you do anything! Make sure you understand the full situation and history of the assets inherited before you sell or change the situation!! In this case the beneficiaries who inherited ‘shot themselves in the foot’ or cost themselves dearly. In regard to some matters it was too late to change or correct their mistakes but… in other ways we were able to prevent them making further big mistakes as the EXECUTORS (and themselves as the beneficiaries) by guiding them step by step through the process.
THIS WAS A CLASSIC CASE OF A LITTLE BIT OF KNOWLEDGE BEING DANGEROUS!