How to Choose Who Should Inherit Your Wealth and Ensure Efficient Distribution
Estate planning, or the process of choosing and documenting how your assets will be distributed after you die, is a vital step in leaving a legacy and ensuring your loved ones are financially taken care of after you pass away. This process can be daunting and involves complex emotions. Still, it is important to carefully think through and communicate your goals and wishes for your estate before the immediate need to do so arises. Otherwise, you risk your estate being distributed in a slow, public, and potentially stressful probate court proceeding according to the laws of your state, possibly in a way you would not approve of or that does not best serve your family’s needs.
Choosing a Beneficiary or Beneficiaries
When a person has a spouse and child, it may seem straightforward that they would plan to leave everything to their surviving spouse, who would then leave everything to their child, but the matter is rarely that simple. Life and relationships evolve, and loved ones can create new family ties after we die. Often, people must choose how to distribute their wealth among several beneficiaries, such as those with multiple children or grandchildren, those close to extended family members, or those who wish to include their friends or charitable organizations in their estate plan.
This situation can be complicated even further when certain assets cannot be easily divided, such as a house or family business. Some beneficiaries may feel strongly about inheriting and living in their childhood home, whereas others might have established roots elsewhere and have no interest in moving, preferring to sell the house instead. When you have multiple beneficiaries or a large illiquid estate, discussing inheritance expectations with your loved ones is paramount. Such discussions can mitigate personal conflicts that could damage relationships if left unaddressed.
If charitable giving is an important part of your current spending plan, you can also incorporate it into your estate plan. Many people choose to use a portion of their estate to support a charitable cause close to their hearts, such as by setting up a foundation, leaving a specified donation amount to an organization, or establishing a scholarship fund. Tragically, some individuals are left with no immediate family at the end of their lives, while others are fortunate enough to have accumulated more wealth than they or their loved ones can reasonably spend. In both cases, although different, leaving some or all of your estate to charity can be a great solution.
The decision of who should inherit your wealth is deeply personal, and each person will have unique considerations when planning for this eventuality. Below are some frequently asked questions that arise when people consider whom they want to inherit their wealth:
- What do I hope to achieve with my estate plan?
- Who depends on me financially?
- Who will use my wealth responsibly and in a way I approve of?
Ultimately, only you know who would benefit the most from inheriting your wealth and who would use it responsibly and in alignment with your values.
Ensuring Efficient Distribution
Efficient distribution has two primary areas of concern: lowering estate taxes and avoiding a lengthy probate court proceeding that prevents your beneficiaries from receiving their inheritance in a timely manner. Trusts can be effective tools for managing and distributing wealth and can help strategically pass on wealth in a tax-efficient manner. Trusts give a person more control over their assets and the circumstances of distribution, such as by appointing a trustee to oversee asset distribution and dictating when, how, and to whom the assets will be given. Additionally, trusts often bypass probate court, which allows assets to be distributed much more quickly and privately than they otherwise might be.
Circumstances and relationships are ever-changing, so regularly reviewing your estate plan and updating it as needed is wise. Life events such as marriages, divorces, births, deaths, and significant changes in financial situations may prompt you to modify your plan. Keeping your estate plan up to date ensures that it accurately reflects your wishes and will best serve your loved ones.
Once you have decided how you intend your assets to be distributed, it is crucial to document your estate plan. This requires filling out paperwork such as your will, trust agreements, and powers of attorney. This can be done on your own with the help of online software. However, if you have a complex estate or are unfamiliar with your state’s inheritance and estate taxes, you may benefit from working with an estate planning attorney or financial advisor to ensure your estate plan is properly documented, optimized for tax efficiency, and legally binding. Then, store your estate plan documents in a safe place accessible to the beneficiaries who will need them, and ensure your beneficiaries know these documents exist and where they can find them.
The financial advisors at Business & Financial Strategies can help you and your family establish an effective estate plan to ensure your loved ones will not endure preventable financial and legal stress after your death. Its advisors are experienced in guiding clients and their families through difficult and emotionally charged financial decisions through fully integrated financial planning that encompasses family wealth counseling, estate planning analysis, insurance planning, investment planning, and much more. This suite of services helps clients feel confident in their financial decisions for themselves and their descendants. When estate planning, it is important to work with someone familiar with your state’s estate or inheritance laws. Business & Financial Strategies has offices in the Iowa City/Coralville area and Fairfield, Iowa, and it serves clients throughout the United States. To learn more, call (319) 358-7700, or go to www.BFSFinanicalPlanning.com to schedule a complimentary initial 20- to 30-minute conversation in person or virtually.