Some rules regarding asset transfers may cost you or your heirs.
Do beneficiary designations seem straightforward to you?
Simply write down a name and the individual is set to receive your money when you die.
This area of estate planning may be more complicated than you expect.
According to a recent Forbes article titled “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries,” you need to consider the asset itself when assigning beneficiaries.
Leaving a life insurance policy.
Once your death is confirmed, life insurance is paid.
Naming a beneficiary who would need these funds immediately is a good idea.
Your spouse would be a good option.
If you want to leave it to a minor child, he or she will need a guardian to manage the funds.
You could also direct the proceeds to a trust for the benefit of your child.
What will happen if you leave the money to a minor with no further instructions?
The court will decide on an individual to manage the funds for them.
You probably want to make this decision rather than the court, right?
Passing assets through a will.
It will take longer for heirs to see assets passed through a will.
The will must go through probate before the asset can be distributed.
If waiting is not idea, you could create a revocable living trust.
This way, the trustee could immediately pass your assets to beneficiaries after your death.
Designating retirement plan transfers.
Retirement plan transfers have tax implications.
If you leave the plan directly to a young individual as beneficiary, then there will be more years for the plan to grow tax-deferred.
Does your heir have debt issues?
If so, leaving the plan to a trust could solve your problem and shield the trust from creditors.
However, unless the trust is specifically designed as a "conduit trust," then the maximum "stretch" on the distributions may be lost.
In the end, great care must be given to coordinating your estate planning legal documents with the beneficiary designations on your life insurance policy and retirement plans.
If you are not careful, your estate planning legal documents (e.g., will and trust) and those beneficiary designations may be at odds with one another.
That "failure to coordinate" could leave your "unintended" and "intended" beneficiaries at odds with one another at your passing.
Work with an experienced estate planning attorney to ensure your will and beneficiary designation work in tandem.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Forbes (May 30, 2017) “Pass On Your Assets Wisely: How To Choose The Right Beneficiaries”