In this episode we will go through a process that will help you figure out what to do when an elderly parent or a spouse dies. This is especially useful if you are the named executor of an estate, or trustee or successor trustee of a trust for the deceased since you will be the one who will aid in determining and/or delivering on their wishes.
More specifically, I discuss:
- What immediate tasks must be done when an elderly parent or spouse dies?
- What important documents to look for when organizing an estate
- What people and organizations to reach out to and why
- What is probate and is it required?
- How does a trust work when settling an estate?
- General guidance on what the process of distributing an estate looks like
Resources From This Episode:
Article: Forwarding The Decedent’s Mail
Related Episode: Estate Planning in Retirement
Greetings, everyone! Thank you for joining me today on another episode of Retired-ish. Now I understand that today's show may come as a sensitive topic for some of you, but my goal is to help educate you on what you can do during a time when life throws everything at you all at once.
When you lose your closest loved ones, such as a parent or a spouse, you're going to be tested in ways that are emotionally and potentially physically draining. When we lose someone this close, we need time to grieve and remember those who we love and who made a meaningful impact on our family's lives. This is healthy and also necessary. Now, everyone will grieve differently and require different amounts of time to at least partially heal. However, it's important to know that there is almost nothing financially that needs to be done immediately, and definitely should not take priority to the grieving process.
In addition, this state of grieving will likely take precedence over your current day-to-day life and responsibilities, at least initially, as it should. However, you obviously won't be able to put your life and responsibilities on hold forever, and unfortunately, you'll have to pick up your growing to-do list eventually. One significantly large part of that to-do list, when you get to it, we'll be dealing with the finances and settling the estate of your loved one. So, in today's episode, I want to help you tackle that list with confidence by going over the process of what to do after the initial grieving and how to do it.
[00:01:56] You may be thinking, what does this have to do with retirement? And I'll tell you, it has everything to do with retirement because one, if your spouse passes, your retirement will be directly impacted, and two, typically your parents are in the last stages of life while you are in your early retirement years and this stuff will impact you whether or not there are a lot of financial assets involved.
So, if you're going through this process now, or think you might soon, you can use this podcast to refer back to as a general guide. I will also include many helpful resources in today's show notes that you can reference back to as well.
The information I'm gonna share with you today, it’s especially helpful if you are the named executor of an estate or maybe a trustee or successor trustee of a trust for the deceased. In other words, through a will, a trust or a state's probate process, you have been deemed responsible for the administration of your loved one's belongings after their death. You are the one who will aid in determining and or delivering on their wishes.
Okay, so let's dive right into step number one, which is to get organized. Now, depending on the size and complexity of the estate, it may or may not settle quickly. Now, when I refer to someone's estate in this context, it is simply their assets and liabilities at death or assets and their debts. In other words, we're not talking about a big piece of property with a big house on it or something like the ranch in the show, Yellowstone, which may also be sometimes referred to as an estate. However, someone's estate may, of course, include a big piece of land or a nice big house, but I digress. To get organized, you're gonna have to do some administrative tasks, such as locating various documents and reaching out to different organizations, companies and professionals.
Now before you start gathering anything and everything in sight, there are some more immediate documents and administrative tasks that you'll want to get done. For example, as executor, you'll most likely be responsible for paying funeral and burial costs from estate funds. So, you'll want to contact the mortuary to make funeral and burial or cremation arrangements and arrange for an obituary notice.
[00:04:03] You'll also want to look at whether or not they're set up for organ donation. A quick look at their driver's license will tell you this. You'll want to locate specific burial insurance policies or maybe even prepaid mortuary or any cremation or society plans. If your loved one had some estate planning done with an attorney and or other professionals, these types of documents and items may be found in some sort of family financial and estate organizer. This typically looks like a large binder and likely kept somewhere safe. Maybe it's in a safe in the deceased home. However, it won't always be this easy to find these documents. Those with little estate planning done before they passed may not have things organized on this level or even have some of these documents in the first place.
You’ll want to take an inventory of any safety deposit boxes or safes, as well as the family, financial and estate organizer or binder if one exists, and any important personal papers of the deceased. Contact, friends, relatives, religious organizations, their doctor, their employer, if they were still working or maybe business partners and their professional advisors, such as their financial advisor, their attorneys tax preparer, et cetera. Allow these professionals to help you out in this time of need. They will make the process dramatically easier on you if you allow them to. For example, in my office, we keep a copy of all of our clients' estate planning documents, and we keep them organized so they can be located quickly when needed.
We also do conference calls with authorized representatives of the estate when reaching out to various institutions on the important financial matters of the deceased. This saves a lot of time and hassle, especially when your thoughts are clouded and your mind is somewhere else. You'll also wanna make arrangements for dependence and pets, if any. Did Mom or Dad mention who will take care of Fido? You'll wanna figure that out. Secure the deceased's home if other than your spouse and remove any valuables. This is particularly important when there are things like storage units or maybe multiple homes or vacation properties. After the funeral formalities, you'll wanna start settling the estate.
[00:06:15] If no properly signed and executed trust exists, or substantial assets were not moved into a trust, you'll start by first obtaining a certified copy of the will, which again hopefully exists. You'll want to file that with the local probate court, in order to obtain what are called your letters testamentary. This will give you the legal authority to go about executing the will and finalizing the estate.
These letters will allow you to manage and dispose of the assets, open and close bank accounts, file tax returns, and pay the taxes, deal with creditors,
beneficiaries, and other interested parties when you get to those parts of the process. You'll need to find the most up-to-date signed, original and certified version of the will and any amendments to the will.
To locate it, start with the person who informed you that you were the executor unless you already knew it was you, of course. That person should have a copy of the will or know where the will is located. If not, ask the deceased person's attorney or other professional advisors. Now once you find it, make copies and put the original in a safe place until you're able to file it with the local probate court.
Most probate courts require it to be filed within one month of finding it, even if you do not need or you don't think that you're going to need probate proceedings. So, although you still need to file the deceased's will with the probate court, you may avoid formal probate proceedings if the deceased personal property is worth less than a certain amount, and this is going to depend on the state in which the deceased lived.
[00:07:51] If there are any substantial assets that were solely owned by the deceased and there were no beneficiaries named on those, or no one else on title, and you know a trust does not exist, those assets may be considered probate assets and you may be required to begin formal probate proceedings. So, check with your state laws and an estate planning attorney for guidelines on the probate process and the limits for your state.
Once you have your letters testamentary, you'll want to open a new bank account for the estate to help temporarily maintain an account for the estate. This account can be used to pay outstanding bills and necessary ongoing expenses like maybe a mortgage or property taxes. It could be to pay for the estate and final tax returns, or maybe collect rents on a rental property, et cetera.
Do not invest any investment proceeds or income of the deceased in your own personal accounts, it is very important not to commingle these things. Hiring an estate planning attorney can also help smooth this process and make it much less stressful. They can guide you specifically on how to set these accounts up and how to get the tax IDs in order to do so for the estate. The benefits that they can provide will typically far outweigh the costs. There are a few other tasks that you can begin doing as well, such as developing a list of payments being made by the deceased. In the case of an elderly parent who passes, you can cancel unnecessary recurring payments such as regular elder assistance services, if any. And other things like Meals on Wheels types of services, or mail prescriptions, et cetera. Again, you'll just want to cancel those that are unnecessary.
If the deceased did not live with you, you should also physically go to the post office to file a request to forward their mail to your address. You will need to provide a government issued photo ID and proof that you're authorized to do this. But this will help smooth the entire process of gathering documents and getting clues as to what documents and financial accounts or subscriptions actually exist. An authorized individual might be a named executor, for example, so that's where those letters testamentary are gonna come in. Those can help you provide proof.
Now one very important step will also be to obtain copies of the death certificate, I'd say around eight to ten, and you get these from the county clerk or possibly the mortuary. Death certificates are the official evidence of death. You'll need death certificates to close out accounts, claim benefits like life insurance proceeds, or change retirement accounts and things like that, or property for a beneficiary.
[00:10:39] And they're also required to continue or cease social security payments. Again, ask for at least eight to ten certificates or more. If the deceased has many types of property, this is especially important. Since your local county office will receive the documents sooner, contact them first versus maybe the mortuary. Expect to pay up to about 25 to $30 for the first certified copy and less for each successive copy. Any costs incurred on your part should eventually be reimbursed to you from the estate towards the end of the process.
Okay, so after you've chipped away at the more immediate part of the list in step one, you can begin step two, which is locating various personal records that are key to obtaining important information regarding larger assets and liabilities of your loved one. These are typically found in a safe, safe deposit box or throughout files kept in the home, such as in some kind of financial an estate binder like I mentioned before.
So, here's a list of some of the most important documents you'll wanna look for. First, you'll wanna see if you can locate their birth certificate, their social security card, passport, and or driver's license. These are gonna be required in order to provide useful information when making calls to the different organizations, which comes next in the process. You'll also wanna look for marriage certificates and any potential military records. Again, these are going to be important to help obtain potential benefits for beneficiaries or maybe a surviving spouse, which again, you'll need when reaching out to the various organizations.
[00:12:10] You'll wanna look for a divorce judgments or decrees if the deceased was ever divorced. These are crucial to prevent disputes over maybe alimony payments, or any invested assets or debts, property life insurance proceeds, et cetera. You'll want to locate logins and passwords, attempt to locate these for their computers or phones, tablets, email, possibly social media accounts, banking and investments.
You'll want to be careful here because you don't want to act like somebody else. You don't want to act like you are the deceased and start controlling and signing into these accounts. Different states have different laws on how to do this, so please consult an attorney when looking at accessing some of these different accounts.
Now you'll also wanna locate statements and other miscellaneous documents. Deeds for all real property of vehicle titles, bank statements, investment statements, credit card statements, mortgage documents, insurance policies, tax returns, business operating agreements, maybe if they had a business, you'll want to look for their social security statements, et cetera. And here's a pro tip. Locating the most recently completed tax return can give you a fantastic idea of what benefits and financial assets one was receiving. This will help serve as a guide for other documents to look for and from which organizations.
You'll also wanna make an inventory of other not so obvious things such as physical cash or gold and silver, coin and jewelry collections, antiques, maybe expensive furniture. You'll wanna find out if there's any loans to family members, maybe offshore bank accounts. Did they have royalties, copyrights, or trademarks, or maybe some other business interests or business property?
[00:13:56] Those are all going to be very important too. Don't let those fly under the radar if you know something like that might exist. And likely the most important of all, but definitely not last, locate any wills and trusts. Again, these are absolutely critical if they exist. These are official legal documents that can dictate how the estate should be distributed. Hopefully, you've already found these. If a trust exists, identify the trustees and successor trustees that are actually named in the trust. All you gotta do is read it. It will spell that out very clearly for you, and hopefully that's you. If not, contact those named individuals immediately. Speaking of trusts, I want to take a moment to explain some of the basic details of trust documents so that you have an idea of how this would all work administratively.
A trust is simply a legal vehicle that allows a trustee to hold and manage assets inside the trust for the benefit of one or more beneficiaries of the trust. The trustee is oftentimes also the grantor or the creator of the trust while they are alive. Then upon their death, either a co-trustee or possibly a successor trustee steps into their place to now manage the trust.
That being said, the trustee or successor trustee is responsible for carrying out the directions of the trust. While the beneficiary or beneficiaries are those who actually benefit from the trust. An individual may be a trustee and a beneficiary. Again, this may be you in your situation right now. Oftentimes, adult children are listed as both in some capacity. If trust documents are located, they should be carefully read and understood. Individuals may have multiple different trusts for different reasons, so make sure to identify which is which, and definitely make sure you're locating all of the trusts.
[00:15:55] The most common type of trust you will find is a revocable living trust or family trust, which should be indicated by the name of the trust on the front of the trust documents. Because these types of trusts are revocable, these trusts allow the individual creator or that grantor to move assets into and out of the trust as they please while living, but only while living.
That being said, revocable trusts generally become irrevocable upon the death of the creator. In other words, the trust language can no longer be changed and the assets cannot be moved necessarily in or out as the trustee pleases. This essentially gives the deceased control from the grave. These trusts are designed so that the wishes of the deceased are carried out as they intended and to prevent turmoil after they pass.
This also helps protect family bonds by preventing arguments about what Mom or Dad would have wanted. Although unfortunately, I will tell you from experience, sometimes these tussles still do happen. So, one of the largest benefits of trusts in the first place is that they generally avoid the probate process that I talked about earlier, at least for the assets that are actually in the trust.
So some assets may have been left out of a trust and may still cause a probate depending on your state's specific laws. Probate, by the way, is the state's legal process of transferring property upon a person's death, either by following the deceased's wishes as outlined in his or her will, or pursuant to the applicable state laws.
If there is a trust and assets have been titled or placed into that trust, you won't have to fight with siblings in court over who gets what or have the probate judge decide for you. This can also save a lot of money, leaving more for the beneficiaries for whom the money was actually intended. Now the trust will identify trustees and beneficiaries of that trust.
[00:17:55] Again, you are possibly one or both of these people, and I will repeat this again because it is very important to understand. And that is that beneficiaries of a trust are only beneficiaries to the assets actually put into that trust. If, for example, the deceased has an IRA or a 401(k), they likely have beneficiaries individually named on those accounts, which may or may not be you or the beneficiaries of the deceased trust, and those instructions on those accounts will supersede a trust or a will.
Now, those assets are typically not held inside a trust, either because they can't be or because they often don't need to be and will cause more headache when done that way. If you've listened to previous episodes of the podcast, you will also remember that revocable or living trusts in and of themselves do not provide any special tax treatment for the assets held inside them.
So, all in all, remember this. Assets held in the name of a trust avoid probate and a simple will by itself without a trust still requires probate. In that case, the will generally serves as a set of instructions for the probate judge to go off of. If you are confused about your situation, it's best to reach out to an estate planning attorney to help you navigate these sometimes tricky waters.
As you collect these documents, keep a well-organized filing system. This will be crucial to your success as an executor or trustee. You'll want a filing system to keep track of the deceased files for your own notes and discoveries along the way. Staying organized will help when the inevitable calls from creditors, beneficiaries, banks, and insurance companies come in and always make copies of what you send as official notification.
[00:19:38] Okay, so once you've accumulated most of these documents and crossed them off your checklist, you're ready to begin step three, which is reaching out to the various people and organizations to notify them of the death. To know which organizations to contact, the deceased physical mail can actually tell you a lot. But in any case, here's a list of common organizations that you'll want to reach out to.
First is the Social Security Administration. You'll want to notify them of the death, of course, and to stop any potential checks that were coming to the deceased. They will also typically issue a small death benefit to a beneficiary. Next, you'll want to contact health insurance carriers or various Medicare policy providers, if the deceased was on Medicare. They may have had one plan, like a Medicare Advantage plan, in which case they were associated with one insurance company. Or they may have a supplement plan with an insurance company and possibly a prescription drug plan with another insurance company. And you can likely find out quickly by locating their various insurance cards in a wallet, for example.
Next, you'll want to contact the Veterans Administration, if the deceased was a veteran, and obviously let them know. There may be some benefits for a survivor here as well. You'll also want to contact utility companies. However, I'm not necessarily saying that you contact these companies in order to cancel services because that's going to depend on what is being done with any of the real property owned by the deceased, and when.
You'll also want to notify payers of any pensions or annuities. This could be the state in which the deceased lived, it could be the federal government or even a private company they received a pension from. This might be even a private insurance company that the deceased was receiving payments from. Maybe if they purchased an annuity from an insurance company, there may be residual benefits for a beneficiary on these types of pensions. You'll want to notify the DMV, obviously and just let them know about their passing, and hopefully they can help with some of the registration of different vehicles. You'll also want to notify all three credit agencies. As a reminder, those are TransUnion, Experian, and Equifax. You'll want to notify insurance companies, and this is to arrange for any death benefits that may be payable to beneficiaries.
[00:21:54] So this would be for things like life insurance policies primarily and possibly annuities, like I mentioned previously. You'll wanna contact the deceased estate attorney if they have one, hopefully you've already done this. And you'll also wanna reach out to their tax preparer. And this is because you'll want to consult them on death or income taxes owed and completion of final tax returns for the deceased.
If there is a trust involved, a trust return may also need to be completed. In these situations, it's best to also reach out to the financial advisor, if any. If the deceased doesn't have either of those professionals, consider hiring your own team and be sure that they will coordinate nicely together. This will help you in the long run.
You'll want to contact financial institutions such as retirement and other investment account custodians and banks. Custodians are simply the large companies where the money is actually held with these investments. These are companies where any investment statements that you find are coming from. So, if you find an investment statement, usually somewhere towards the bottom or at the top, there will be the name of a company, typically, that is the custodian where the money is held. Remember that included in the estate is also the deceased's debts or liabilities, if any. So be sure to contact potential creditors and payees of the deceased, and please note that when it comes time to distribute funds from the estate, creditors generally are paid first before distributing any assets to beneficiaries of the estate.
Okay, so now that you've completed all of the immediate administrative tasks and you've found what you believe are all of the necessary documents to settle the estate, and you've reached out to all of the important organizations and people that need to know and paid any creditors, and all liabilities are dealt with, it's time to finally start distributing any remaining assets in the estate. For extremely complex estates with businesses, investments, and rental property, you'll definitely want a team of professionals to help you complete this as there may be various legalities that need to take place or documents drafted beforehand.
[00:24:02] However, sometimes this part can actually be rather simple. First, if there is a trust and you are the trustee, the trust will have language that explains who gets what and how. Most of the time, but not always, they are basic and indicate that the named beneficiaries are to receive some percentage of the assets held in the trust.
However, first, you must confirm whether or not those assets were actually put into the trust in the first place. For example, a piece of real estate or an investment account may be listed in the trust's language, but let's say in the case of real estate, the latest executed deed shows that it is in the deceased name alone, or is a joint account, and so it's registered as, let's say, joint tenants with rights of survivorship, or JTWROS, for short, with some other individual that jointly owns that property. Then that real estate will not be distributed according to the trust’s language. The titling of the asset will supersede the trust. This is just one example, but I bring this one up because it is very common in reality.
Now, if done correctly, the deed would have been quick claimed by the deceased while they were alive, to the trust and the new deed would show the name of the trust as the owner on title. Another example of this is if there are investments or bank accounts held with the transfer on death or payable on death registrations with the deceased's name.
Usually this will be indicated as the name of the account on the individual statements. These accounts have a designated beneficiary directly on them, and they're typically individuals. Again, these beneficiary designations will supersede any trust language. You may find, however, that one of these accounts has the name of the trust as the named beneficiary. In this case, the money will need to feed into that new trust account for the trust before you distribute any assets according to the trust's terms.
[00:26:06] Any investment or bank accounts that the deceased may have had, may also have joint owners or some other form of ownership registration. In the case of joint tenants with rights of survivorship, the same rule will apply here as the real estate example. If the other joint owner is alive, the account is immediately wholly owned by them at the passing of the deceased. The beneficiary on that account doesn't necessarily matter yet because not all owners have passed away, and whatever the trust says won't matter either. All that being said, hopefully if everything was executed correctly, you'll find a bank or investment account that is actually titled in the name of the trust. In that case, the administration and distribution process will likely be much easier.
Now I wanna take a moment to explain a couple nuances regarding taxes before distributing assets to the end beneficiaries. When someone passes away with an asset outside of a retirement account, so it is not something like an IRA or 401(k) for example, and it has very large capital gains embedded in it, those assets generally receive a step up in cost basis as of the date of death for tax purposes. What this means is that the original cost of the asset, plus any additions to it over time, will be increased to whatever the value of the asset was on the date of death.
This is a huge benefit for the beneficiary since it will essentially eliminate any taxable gain at least immediately after death. Here's an example. Let's say Mom had an investment account with $1 million when she passed, and it was comprised of stocks and mutual funds that were bought at various times, some 20 years ago, and some only a couple years ago.
And let's say that altogether, the total amount paid in or invested was $600,000. That would be the cost basis in this example. So, from the onset, you would have a $400,000 capital gain, if you sold everything upon their passing or you just wanted to reallocate it to better fit your own financial plans, if maybe you were the beneficiary. Obviously paying taxes on that amount would be a big chunk out of the money your parents worked so hard to save, which is not ideal.
[00:28:22] However, the way it should work is that if someone passes away with those gains and you inherit the account with the gains, the cost basis of the stocks and mutual funds in this example would step up to the value of them on the date of death, which in my example was $1 million. This means that if you chose to reallocate or sell the investments, you would theoretically have no gain to pay taxes on, a huge tax benefit.
Now, this concept is also true with real estate owned by the deceased, So you may be thinking, ‘Wait. How would I know the exact value of the property or properties on the actual date of death?’ Now, the thing is, for real estate, you don't. What you'll need to do is get a few separate date of death appraisals done to get a close estimate.
Appraisers are used to doing these and are able to take many different factors into account. Then you can keep those records to prove your cost basis in that property should you end up liquidating any of them in the future. One other asset type that is usually not distributed according to trust language is retirement accounts such as IRAs, 401(k)s, 403B’s, 457 Plans, et cetera.
These accounts are owned by individuals, not trusts, and so they will each hopefully have a labeled beneficiary or multiple beneficiaries. Again, the trust may be listed as the beneficiary of a retirement account, but it is not recommended by most professionals unless there is a very specific circumstance such as a special needs beneficiary for example.
Naming a trust as a beneficiary of a retirement account can get very messy. In the case where individuals are named on these retirement accounts, those accounts will pass directly to those named beneficiaries, and they will have various options on how to accept the funds depending on the type of beneficiary they are, such as a surviving spouse, an adult child, a minor child, if they're a disabled beneficiary, or another type of beneficiary such as a sibling.
[00:30:23] The rules on how beneficiaries can elect to inherit these accounts and how to take distributions from them is a vast topic with many different nuances. We will discuss these at length in a future episode, so be on the lookout for that.
Now the last piece of the asset distribution of the estate will likely be the cash in the estate or trust bank account lying around to pay for final expenses and other nuanced things. Like we mentioned before, you will have an account like this to pay for things such as final taxes that might be owed by the decedent, and cost for professionals to help you get through this process and maybe to pay off any liabilities that the decedent may have had or pay any specific cash bequests to other people, Once everything is paid, the remaining cash can be divvied out to the beneficiaries according to the trust documents or the will.
So that's all for today's show. As I mentioned, check this episode’s show notes for some helpful guides we've created to help you through this process. As you can tell by now, settling the affairs of a loved one is definitely no easy task. But you will feel rewarded knowing you were able to carry out their wishes and legacy as intended. And while this wasn't an all-encompassing list of tasks, hopefully it makes the process easier on you. If you can't find the time to tackle all of this on your own, don't be afraid to reach out to knowledgeable professionals to help guide you through the process, so that you can delegate some of these tasks. You'll likely get even more value from tax savings and other time saving tips and advice.
If you have a minute and find this information actionable and insightful, and you wanna stay up to date on the latest and useful retirement planning content, please subscribe to or follow the show on your podcast app.
[00:32:05] If you'd like to learn more about the rules and strategies discussed in today's show, you can find links to the resources we have provided in the show notes on your podcast app, or you can visit us at retiredishpodcast.com/13 to help you plan for the new year, see today's show notes as we are including our newest 2023 quick reference guide that includes the important numbers to know for 2023, such as retirement plan contribution limits, IRMA Medicare surcharge brackets, tax brackets, and more, so you can start planning for the new year.
You can also sign up for the monthly Retired-ish newsletter there as well where each month, we discuss money and emotions, investing, tax, estate tips, Medicare and Social Security, and even a brief discussion about the current markets in layman's terms.
We always include something actionable in our newsletters so that you can implement them right away, such as how-to guides and other simplified strategies. Again, this can all be found at retiredishpodcast.com/13. Thank you for tuning in and following along. See you next time on Retired-ish.
[00:33:09] Securities and advisory services are offered through LPL Financial, a registered investment advisor, member FINRA, SIPC. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
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