With tax season finally behind us, we have temporarily moved beyond calculating deductions, credits, Our second piece discusses a nuanced topic involving Health Savings Accounts (HSAs), and specifically how these types of accounts are treated under the tax code when it comes to inheriting any remaining balance after the original owner has passed. There are and the like, and have refocused this publication on 3 different and unique topics that might prove applicable and interesting to the right audience.

The first article covers Family Limited Partnerships – how they function and the organizational, tax and estate planning benefits that can apply by utilizing them. For our small business owners, there is a lot of planning optionality here.

 some considerations (and potential repercussions) as you choose the appropriate heir or heirs to receive these accounts.

The last article provides information on divorce and financial planning. It covers important planning considerations both during the process and afterward.

Everyone has unique circumstances associated with their finances and we are here to help sort through the details, put the puzzle together, and develop tailored, comprehensive solutions. Whether a client should be considering a Family Limited Partnership to accomplish several objectives, or they are dissolving their marriage and need guidance, we are available to help. 

Family Limited Partnerships

By Jason Foster, JD, AEP®

Effective estate planning should address wealth transfers from a practical and cost-effective approach both during life and at death. One estate planning strategy that families with closely held businesses might consider is the family limited partnership.

What is a family limited partnership? A family limited partnership is a partnership agreement that exists between family members who are actively involved in a trade or business. The partnership divides rights to income, appreciation, and control among the family members, according to the family’s overall objectives. Under family partnership rules, the “family business” can include real estate or investments.

How is this arrangement achieved? You would begin by creating general and limited partnership interests in your business. Initially, it might make sense to own all partnership interests – both the general and limited. Over time, the idea would be to make transfers of the limited partnership interests to your children.

By holding the general partnership interest, even if it is only 1% of all partnership interests outstanding, you are considered the “general partner” and maintain control over the enterprise. Your children would become the “limited partners,” and the limited partnership interest lets them share in the ownership and profits of your business. The benefit they receive is proportionate to the interest they own.

A strategy for transferring ownership. A family limited partnership enables you to provide your children with an interest in your business while achieving specific objectives. First, you can gauge whether or not your children possess suitable ownership abilities by involving them in the business. Second, it removes the asset from the parents’ estate, potentially lowering any estate tax exposure. In addition, you can transfer the limited partnership interests in increments over time, resulting in a gradual, systematic transfer of ownership. Finally, and perhaps most importantly, there may be immediate income tax benefits as some income is shifted to lower tax brackets. More on these objectives below.

Estate tax savings. The interests transferred to your children, including all appreciation since the transfer, escape inclusion in your estate when you die. Only the value of the taxable gift(s) will be included, which is locked in at a much lower value. This can result in estate tax savings down the road.

The benefits of leverage. By giving the partnership interests in increments over time, you can take maximum advantage of the $19,000 (2026) annual gift tax exclusion. The exclusion increases to $38,000 (2026) if you’re married and if each spouse elects to give the maximum amount. The gift tax exclusion is indexed for inflation. None of these amounts count against your estate tax exemption threshold available to pass along assets to heirs estate tax free during life or at your passing. The current exemption amount is $15M for individuals and $30M for married couples for 2026.

In addition, “minority discounts” and “marketability discounts” apply to the value of the transfer. Minority discounts allow reductions to the value of the gift because these interests lack control concerning key management decisions like hiring, asset sales or dividend distributions. Marketability discounts reduce the value of the gift because these private shares lack a centralized marketplace to sell, requiring significant time, cost and effort to find a buyer. Both can lead to greater leverage of the annual exclusion and the unified credit discussed above.

For instance, you may be able to discount the value of the gift at 30%. Assuming there is a legitimate business reason for the partnership (whereas you have created the business for the purpose of enterprise and not just to avoid taxes), these discounted values on the transfers to children are typically allowed. A legitimate business appraisal must be performed to justify the discounted valuation.

Income tax benefits. Aside from the estate planning advantages, the family limited partnership can result in substantial income tax savings. By including your children as partners and sharing partnership income with them, total family taxes – between both you and your children – may be reduced. Please note, however, that if the income is unearned and the recipient is under age 24, “kiddie tax” rules may apply under the tax code, which can greatly reduce the tax benefit of income received above $2,700 by the adult child, as this amount will be taxed at the parents’ marginal tax rate.

Seek Professional Guidance. The benefits of the family limited partnership can be significant. But they can only be realized if the arrangement is valid under the requirements of the IRS. There are costs and expenses associated with the creation of these legal instruments, and thus, an analysis of tradeoffs is always necessary. Consult with Peak and a qualified legal or tax advisor today if you think your family could benefit from a family limited partnership, or other entity formation options available. We are happy to start this conversation and provide you with our observations and recommendations, and coordinate planning with outside professionals.

This article has been reproduced and shared via Broadridge Advisor Resources through the American Institute of Certified Public Accountants (AICPA). The article has been revised and reworked from its original version by Peak Asset Management.

Health Savings Account Inheritance Trap

By Javier Gomez, paraplanner

Health Savings Accounts (HSAs) are often overlooked in estate planning conversations, but the inheritance rules can create unexpected tax consequences for your beneficiaries. The tax treatment depends entirely on who inherits them…and the differences are significant.

An HSA inherited by a spouse will become their HSA, and the account will retain all its tax benefits (this includes tax free growth and tax-free distributions). A spouse can continue to contribute to the HSA with pre-tax dollars if they maintain a High-Deductible Health plan. Note that this does not apply for Medicare recipients and contributing to an HSA while on Medicare will result in penalties. But using an HSA to pay for Medicare premiums is an allowable expense. This makes a spousal beneficiary designation the default “easy button” for most married clients.

But what if you’re not married? For non-spouse beneficiaries (kids, siblings, and anyone other than a spouse), the rules are not as favorable. In this case, the account loses its HSA status, and the full account value will be recognized as taxable income to the non-spouse beneficiary in the year of death. Unlike Inherited IRAs which allow distributions over 10 years for most non-eligible designated beneficiaries, there is no stretch or deferral applicable here. This one-time taxable event has the possibility of pushing recipients into higher tax brackets and increasing their effective tax rate.

There is one offset that might be applicable: paying the decedent’s qualified medical expenses within a year of death can reduce the taxable amount associated with the account.

This is why reviewing beneficiary designations regularly matters and can help avoid a significant tax hit to your loved ones. If your HSA has grown substantially, it may be worth discussing whether spending it down in retirement makes more sense than leaving it behind. Because there is no time limit for the reimbursement of medical expenses from your HSA account, you can keep receipts and reimburse yourself years later with HSA distributions and incur no penalties or tax consequences. Keep good records and store itemized receipts for IRS reporting purposes.

If you’d like us to review your HSA beneficiary designations as part of your overall estate plan, or if you’re not sure who is currently listed as a beneficiary, let us know. We’d also be happy to have a financial planning conversation regarding utilizing this tax-advantaged asset bucket during your lifetime so there isn’t an unfortunate consequence to non-spouse heirs after you pass.

Considerations in Divorce Planning

By Jason Foster, JD, AEP®

Going through a divorce can be an emotionally trying time. Ironing out a divorce settlement, attending various court hearings, and dealing with competing attorneys can all weigh heavily on the parties involved. In addition to the emotional impact a divorce can have, it’s important to be aware of how your financial position will be impacted in the decades to come post-settlement.

Strategic Assessment

Your primary objective early on is data gathering. High-net-worth separations can involve robust balance sheets with brokerage accounts, retirement accounts, executive compensation, business interests, homesteads, vacation homes, rental properties, private equity, and other non-liquid assets that create an intricate mosaic to command. Taking inventory is the beginning of the process.

A proactive assessment prior to negotiations by your attorney, CPA and wealth advisor of both the short- and long-term effects of any settlement to later optimize your financial position will be critical. This analysis involves examining the different types of assets you and your spouse own, discretionary and non-discretionary expenditures, real estate considerations and optionality, debt and credit impact, the tax ramifications of assets and actions, expected future cash flows, and potential insurance and estate and legacy planning updates. Here are some selected financial planning basics to consider as you immerse yourself in this process: 

Asset Division: Quality Over Quantity

Not all dollars are created equal. A $1M brokerage account is often more valuable than a $1M IRA due to the “embedded tax liability” of the latter.

Assets to Pursue:

• Cost Basis Advantage: Seek taxable brokerage accounts or other assets with high cost basis to minimize future capital gains.
• Cash and Equivalents: Essential for post-divorce liquidity and funding new living arrangements.
• Primary Residence (Selective): Only pursue if the equity and “buy-out” costs align with your long-term cash flow.

Inventory and Liquidity:

• Lifestyle Analysis: Distinguish between discretionary spending (luxury travel, club memberships) and non-discretionary costs (mortgages, insurance). If you might expect spousal maintenance based on the current formula under Colorado law, this data can provide important factors for spousal maintenance negotiations. For cases involving high net worth individuals, navigating the discretionary factors can be complex. Division of assets and debts can influence the need for maintenance, and the duration of any award can depend on the length of the marriage. 

Real Estate and the Marital Home

When it comes to real estate, and especially the marital home, there often is the dilemma of selling or buying out the other spouse’s interest. Here are some important aspects to consider: 

• The Buy-Out: The spouse staying must often refinance to remove the other from the debt. In a higher-interest-rate environment, this can significantly alter a monthly budget.
• The $500k Exclusion: To claim the full Section 121 capital gains exclusion ($500,000 for couples), the sale usually must happen while still legally married or under specific settlement terms.
• Credit & Buying Power: If you remain on a joint mortgage post-divorce, the debt is counted against your debt-to-income ratio, potentially freezing your ability to purchase a new property.

The Mechanism of Retirement Division (QDROs)

A Qualified Domestic Relations Order (QDRO) is a legal decree used to divide ERISA-governed retirement plans (like 401ks or pensions) without triggering immediate taxes or early withdrawal penalties.

• Timing: QDROs should be drafted simultaneously with the decree.
• Pensions: In Colorado, the “Hunt formula” is often used to determine the marital portion of a defined benefit pension based on years of service during the marriage. Example: If a spouse works for a company for 30 years (360 months) total and was married for 15 years (180 months) of that employment, the formula used is 180/360, which equals 50%. This means exactly half of the pension is considered marital property.

Debt and Risk Management

Creditors are not bound by your divorce decree. If the decree says your ex-spouse pays the joint Visa bill and they default, the creditor can—and will—pursue you, damaging your credit score.

• Strategy: Close all joint accounts and pay off shared debt as part of the asset equalization before the decree is final.

Insurance Continuity:

• Life Insurance: This can be required by the court to “secure” alimony or child support. Ensure the policy is owned by the recipient or held in an Irrevocable Life Insurance Trust (ILIT) to prevent the payor from stopping payments or changing beneficiaries.
• Health Insurance & COBRA: Divorce is a qualifying event. While COBRA allows 36 months of continued coverage, it is expensive. High-net-worth individuals should negotiate for the payor to cover these premiums as part of the maintenance package.

Tax Principles to Consider

Although not a comprehensive list by any means, below are some tax rules to know and understand, that might be applicable to your specific situation:

Spousal Maintenance and Child Support:

• Federal/CO State Taxability: Per the 2017 TCJA, spousal maintenance is not deductible for the payor and not taxable income for the recipient for all divorces finalized after Dec. 31, 2018.
• Child Support: This is always tax-neutral (non-deductible/non-taxable).

Filing Status and Credits:

• The Dec. 31 Rule: Your marital status on December 31 determines your filing status for the entire year. If the decree is signed on Dec. 30, you must file as Single or Head of Household.
• Claiming Children: The “custodial parent” (where the child sleeps more nights) generally claims the child. Keep in mind, however, that high earners may be phased out of the Child Tax Credit.
• Education Credits: The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit are valuable but subject to income phase-outs as well. Strategically assigning the dependency exemption to the lower-earning spouse might “unlock” these credits for the family unit.

Post-Divorce Considerations

Following the divorce, you should re-evaluate your financial situation and establish a financial plan. Some next steps in this process include:

Budget: A good place to start is putting together a comprehensive budget that reflects your current monthly income and expenses. In addition to your regular salary and wages, be sure to include other types of income, such as dividends and interest. If you will be receiving alimony and/or child support, include those payments as well. As for expenses, you’ll want to focus on dividing them into two categories: fixed and discretionary. Understanding cash flow is critical to good financial planning.

Debt Management: While you’re adjusting to your new budget, be sure that you take control of your debt and credit. Avoid the temptation to rely on credit cards to provide extras. And if you do have debt, try to put a plan in place to pay it off quickly, possibly by paying off high-interest debt first.

Re-evaluate Financial Objectives: Now that you are on your own, your goals have likely changed. Start by making a list of the things you now would like to achieve. Do you need to put more money towards retirement? Interested in going back to school? Would you like to save for a new home? Goals can be effectively modeled in a financial plan so strategies can be assessed and deployed to achieve them.

Protect and Establish Credit: Take steps to protect your credit record and/or establish credit in your own name. A positive credit history allows you to obtain credit when you need it, and at a lower interest rate. Make monthly payments on time and avoid too many credit inquiries. Review your credit report and check it for any inaccuracies. You can go to annualcreditreport.com for more information.

Insurance Needs: Insurance coverage for one or both spouses is often negotiated as part of a divorce settlement. However, you may have additional insurance needs that go beyond that of your divorce decree. Here is what needs to be considered:

• Health insurance – unless your divorce settlement requires your spouse to provide you with health coverage, one option discussed above is to obtain temporary health insurance coverage (up to 36 months) through the Consolidated Omnibus Budget Reconciliation Act (COBRA). You can also explore purchasing individual coverage or obtaining coverage through your employer.
• Disability insurance and life insurance – this can be especially important if you re-entering the workforce or if you’re the custodial parent of your children.
• Property and casualty insurance – update these policies as needed. Any property insurance policies will need to be modified or rewritten to reflect property ownership changes. Also consider umbrella insurance as another layer of protection from unforeseen lawsuits.

Legacy Planning: Beneficiary and transfer-on-death (TOD) designations need to be updated. If your spouse is listed as a beneficiary on any retirement accounts, life insurance policies, brokerage accounts, and/or bank accounts, this likely needs to be changed. Interestingly, under C.R.S. § 15-11-804, a divorce legally revokes any beneficiary designation or fiduciary appointment (executor, trustee, agents) of a former spouse. But if you want your ex-spouse to remain a beneficiary or trustee (common in amicable separations with children), you must affirmatively re-designate them after the decree is issued. Also remember that assets with beneficiary and TOD designations trump your estate plan regarding that specific asset. We recommend you be proactive with changes to leave little to the imagination.

You also need to update your estate planning documents to reflect a new plan for your assets when you pass. You now might consider testamentary trusts for your children to manage any inheritance, whereas before you might have planned to simply leave your portion of the joint estate to your surviving spouse. A comprehensive estate plan review makes sense to make sure your objectives are clear.

Long Term Financial Planning: The focus should now shift to both asset appreciation and wealth preservation. This might require a re-evaluation of your Investment Policy Statement (IPS) to reflect your new risk tolerance and cash flow needs. Sophisticated financial planning reports illustrating cash flow, withdrawal rates, growth rates, and inflation rates, stress-tested by various market scenarios, future decisions, and unexpected events that might negatively impact your long-term financial success should be created to make sure you are on the right path. The key is to make sure your desired lifestyle can be maintained for the decades to come, regardless of what might happen. A financial professional can develop this plan, assist you in investing prudently, provide guidance and recommendations, and monitor and adjust your plan and investments as needed. Peak Asset Management is ready to assist.

Note: Broadridge Advisor Resources through the American Institute of Certified Public Accountants (AICPA) was a resource for some of the information contained in this article.