A California resident may be surprised to discover that some assets are not worth keeping, even if there are sufficient funds saved for living expenses during retirement years. Other assets are so valuable that they should be held as long as possible. The determination of an asset's value in an estate is primarily connected to tax implications at one's death. An asset that appreciates without that appreciated value being taxed is one of the best options to keep. Those assets that will create a tax burden for an individual or their heirs are more suited for liquidation during the owner's lifetime.
If there isn't enough money saved for living expenses during retirement, it may be necessary to sell some assets during one's life. Cash and bonds gain little value, making them helpful to use for these needs. Depreciated securities should be liquidated regardless of need for cash as the value to be passed on to an heir is likely to be less than the benefits gained by selling. A loss can be a help on an income tax return, offsetting capital gains.
Retirement accounts may be tempting to use as a source for additional funds, but it is important to use the funds from taxable accounts first. The pre-tax money that has been invested will be taxed upon withdrawal, while the funds in a Roth IRA can appreciate free of a tax burden due to the fact that the funds invested have already been taxed. The last assets to be liquidated should be collectibles, which have a higher capital gains tax rate than securities.
Although an individual may not have all of these types of assets, good estate planning is important so that prioritization in asset distribution after one's death can be made. An estate planning lawyer might help with a plan for using and liquidating assets as necessary for living expenses and other needs faced during one's life.
Source: Forbes, "Estate Planning: A Ranking of Good Assets and Bad Assets", William Baldwin, August 25, 2014