Not All Assets are Inherited Equally

By LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management AdvisorSM, Accredited Investment Fiduciary® |

When people think of estate planning, they often think of wills and trusts.  When people think of legacy planning, they often think of the value of the assets they will leave.  What people often do not think of, is how their asset transfer will play out.  Let’s walk through some topics of conversation I’ve repeatedly had with clients. 

Retirement accounts and non-retirement accounts.  You could have a million dollars in an IRA and a million dollars in a non-retirement account.  Which is more valuable upon inheritance?  The non-retirement account, because of taxation.  Pre-tax money that was contributed to a retirement account is subject to ordinary income taxes upon withdrawal.  Furthermore, the IRA may be subject to required minimum distributions forcing money out of the account and if inherited by a “non-eligible designated beneficiary” (an IRS term), the account must be emptied in 10 years, fully subject to income taxation.  Conversely, the non-retirement account does not come with those same strings attached.  Furthermore, the non-retirement account may enjoy a stepped-up cost basis, whereby capital gains tax implications may be reduced. 

Land and real estate.  Upon inheritance, your beneficiary needs to have a source of liquid funds to pay the ongoing maintenance and expenses.  Furthermore, some things may change upon your passing.  Did you know for example, that some homeowners’ policies will not insure a vacant home, and therefore the policy may need to be changed if the owner was the sole occupant and dies?  Additionally, if liquidation is the intention, the final value will then be the sale price which will be determined by the market at the time, less maintenance and selling expenses. 

Business inheritances are almost always complicated.  Is the successor qualified to run the business?  Is the business ready for the new owner?  If a partnership, is there a buy-sell agreement in place?  Does it include a formula to value the business so there is not an argument?  Does the surviving partner have money available to carry out the buy-sell to the deceased owner’s beneficiary?  These are where the questions begin.

Equipment.  I’ve had a good number of clients who own construction or related companies.  They add up the value of their equipment and believe that if their spouse is not able or wanting to continue the business, the spouse will just sell the equipment and that’ll work like a life insurance policy.  Sure, that could work, but you’d have to factor in the eventual sale price of the equipment, not what you’d purchased it for or even what YOU would sell it for.  Furthermore, if there is debt on the equipment and it’s no longer producing income, the sale may be to the first willing buyer, not the highest bidder.  We often hear this referred to as a “fire sale”, where assets are sold at a deep discount due to some sort of distress.

Collections.  Like art, cars, jewelry, salt and pepper shakers, mugs and shot glasses, guns, tractors or figurines.  While the collection may have significant meaning to the owner, it may not hold the same value to the inheritor.  These are good conversations to have in advance to potentially avoid conflict between multiple heirs.  Some may feel like they may have been slighted or even overlooked if for example, they got the jewelry but would have really rather had the cars.

Life insurance and bank accounts.  These are the easy ones, as long as the beneficiary designations or the transfer on death instructions are properly recorded on the account.  Life insurance pays out in the form of a check to each beneficiary, most often, income-tax free.  Bank accounts are simply cash and cash is easy to understand and simple to work with.

Just remember that not all assets are inherited equally.



LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.