Dying with “Unrealized” Losses

From time to time investors accumulate “unrealized losses” in an investment.  These are losses that an investor could incur if they sold the investment.  And by doing so, they may be able to claim the loss on their tax return up to annual limits allowed by the IRS.

This is the big issue most people hear little about.  If the investor dies before realizing the loss, those losses will go away and cannot be claimed on the tax return.  The losses therefore could be lost forever.

Let’s look at why this may be important.  For an example, let’s say Mr. Jones is 85 years old and some time ago he bought an investment from his broker that today is valued at $20,000 less than his original investment, or cost basis.  If he sold the investment today he could realize the loss of $20,000.  Mr. Jones can use that loss by offsetting future taxable investment gains, plus up to an additional $3,000 per year of loss deductions.

While a somewhat complicated subject to discuss, be sure to talk this over with your investment advisor and/or tax professional.  If it makes sense to continue to hold the investment, your investment advisor should be able to explain how you can repurchase the investment after 31 days to avoid “wash sale rules”.  Don’t leave deductible losses on the table if your situation warrants taking advantage of some otherwise commonly overlooked tax benefits.


XYZ Strategy #2

XYZ Strategy #2Take control of things

“Are you talking about legal documents?” you may ask… as many don’t have them yet.  After all, that’s something your parents need, but not you… right?  No!  There are several reasons to have some key, basic legal documents in place.  While it’s true that some of this is based on personal preference, there are still some common needs that apply to all of us.  Below are some thoughts that may help you in planning – but you should always seek out proper legal advice before implementing any strategy that is involved, especially end-of-life issues.  Believe it or not, you can control distribution of your hard earned savings from the grave (or hospital bed).

1) Name your beneficiaries – while you can.  And keep them updated!  Did you realize that accounts and policies which require beneficiaries often supersede a Will and pass outside of your estate?  That means whoever you name as beneficiary will receive the $’s.  And it’s true that many people fail to name them… and their reasons cited as to why are often weak.  So, make sure you name beneficiaries (and contingent beneficiaries) on your retirement accounts, IRAs, life insurance policies, etc.  In addition, you can often name other accounts as “TOD” accounts which are authorized to “Transfer on Death” when one occurs.  After you do this, remember to keep your beneficiaries updated as life goes on…

2) Protect your kids – from hurting themselves.  Families today often fail to realize one of the most basic truths about their children:  minors don’t know how to manage wealth.  When we were young, we hadn’t developed sound spending and savings principles that we later leaned out of necessity, or from years of life experiences.  But in adolescence most follow the crowd, spend on impulse, and waste $’s on unneeded things.  This can wreck a hard-built plan pretty fast.  Remember, as a child we didn’t think about our future because our parents took care of everything.  But when the parents are no longer around, it can be difficult to manage life – and to pay the bills.  Work with a competent attorney who can use a Will or even a trust to set up parameters that benefit your family.  You can create “sprinkling clauses” to pass wealth on to children at specific ages instead of all at once.  You can name that trusted guardian to raise your children like you would.  And yes, you can even leave your baseball card collection to that charity you trust.

3) Let others help you – when you can’t help yourself.  Often overlooked, make sure you have named someone to help out when you aren’t able to make decisions… health, life and yes, even investment decisions.  If you become incompetent, you need a power of attorney in place that gives authority to a named individual to act on your behalf, and to sign for you (under certain circumstances).  Yes, this even applies to your spouse.  Make sure you check into this and have the proper documents in place before something happens… even before leaving the country or traveling to that remote area where no one can reach you by cell!