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D Losing Control by GIVING AWAY ASSETS 
Some people actually re-title assets in their children's names while they are living, thinking it will 
make things easier for their children when something happens to them. 
The first problem with giving away an asset is-it's gone. What if you want or need it back? You 
may think your children would give it back to you. But things change. Your children could sell the 
asset against your wishes or lose it to their creditors. If you outlive your children or they divorce, 
a daughter- or son-in-law could end up owning the asset. Would she/he give it back to you? 
The second problem is taxes. Currently, if you give someone other than your spouse more than 
$13,000 in one year, a gift tax may be involved. (This amount is tied to inflation and is adjusted 
from time to time.) And when your children sell the asset, they will probably pay capital gains tax. 
That's because the asset would not receive a stepped-up basis. 
The basis of an asset is the value used to determine gain or loss for income tax purposes. If you 
give the asset to your children while you are alive, it keeps your basis (what you paid for it). But 
if they receive it as an inheritance through a will or trust, it can receive a new stepped-up basis, 
to fair market value as of the date of your death. 
Let's say you purchased your home years ago for $50,000 and it's worth $250,000 when you die. 
If you transfer title to your children while you are alive, the basis would be $50,000 (what you 
paid for it). If they sell the house for $250,000, they would pay $30,000 in capital gains tax on the 
$200,000 gain (15 of $200,000 = $30,000). But if your children receive it as an inheritance, the 
basis would be $250,000. If they sell it for $250,000, they would pay no capital gains tax. 
Substantial gifts may also disqualify you from receiving Medicaid and SSI (Supplemental Security 
Income) benefits for a significant period of time. 
Having said all this) gifting can be a great wqy to reduce estate taxes if your estate is larger and you can afford to give 
awqy an asset. However, gifting can be complicated It should onlY be done 7JJith assistance from an experienced profes- 
sional. And never give awqy an asset you mqy need. 
II Losing Control with BENEFICIARY TRANSFERS 
U sing beneficiary designations to transfer assets is becoming more and more common. Many 
assets-like life insurance policies, IRAs, retirement plans, some bank accounts (pay-on-death 
accounts) and even some brokerage accounts (transfer-on-death accounts)-let you name a ben- 
eficiary. When you die, these assets will be paid directly to the person(s) you have named as your 
beneficiary without probate. At least that's the way it's supposed to work. Here are some examples 
of situations you may not have considered: 
•	If your beneficiary dies before you (or you both die at the same time), or if you list "my 
estate" as the beneficiary, the asset will have to go through probate so it can be distributed 
with the rest of your assets. 
•	If your beneficiary is incapacitated when you die, the court will probably take control of the 
funds through a conservatorship' or guardianship. That's because the institution paying the 
proceeds (an insurance company, for example) will not knowingly pay to an incompetent 
person, and will probably insist on court supervision. 
•	If you list a minor child or grandchild as a beneficiary, you could be setting up a court guard- 
ianship for the child. 
'. • If your estate is larger, you could be limiting your tax planning options. This could cause 
serious tax consequences later on for your family. 
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