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3 ways commingling of separate assets that can affect estate planning

On Behalf of | Apr 8, 2024 | Estate Planning

Commingling of separate assets refers to the mixing of assets that were originally kept separate or classified as separate property. This can occur in various contexts such as marriage or business partnerships and can have significant implications for estate planning.

While commingling can occur a result of pure intentions to streamline finances or simplify management, it can inadvertently complicate matters in estate planning for the following reasons.

Tax considerations

When assets get commingled, it becomes challenging to accurately determine the tax basis of each asset. This can complicate tax calculations particularly when it comes to determining capital gains taxes upon the sale of assets or calculating estate taxes upon the owner’s passing. Without clear documentation or accounting of the original basis of each asset, heirs and beneficiaries may face difficulties in accurately reporting and paying taxes on inherited assets.

Asset protection

If commingling happens in business partnerships or ventures, it can jeopardize the protection of individual assets from business liabilities. When personal and business assets are mixed, creditors or legal claimants may have greater ability to access those assets to satisfy debts or legal judgments related to the business. This can undermine the asset protection strategies that individuals may have put in place to safeguard their personal wealth in the event of business-related risks or liabilities.

Estate distribution complications

Since commingled assets are no longer clearly delineated as separate property, distributing them according to the owner’s wishes can become challenging during estate planning. Without clear documentation or legal agreements specifying the intended distribution of commingled assets, beneficiaries may dispute their ownership rights or entitlements. This can lead to delays in the probate process and potential legal battles among heirs resulting in increased costs and emotional strain on family members.

For all of these reasons and more, it’s important to understand the different ways that commingling of separate assets can happen and to take proactive steps to prevent it. If you’re unsure about how to protect your separate assets or need assistance with estate planning and asset management, seeking legal guidance can provide valuable insight and peace of mind.