Have you started to think about how you would like to pass on the assets you have accumulated over the years? You may have children, grandchildren, and other family members whom you would like to help out financially. You may have thought about helping out friends and various charities also.
While leaving assets to family members is generally a good thing, it can also create rifts, anger, and hurt feelings among family members who feel that their share of the family legacy was insufficient.
While there is no foolproof way to avoid potential dissension among family members, you can take steps to minimize the potential for strife in your family by discussing openly and honestly with your loved ones how you intend to have your assets distributed. Explain your thinking and listen to any disagreements family members may have concerning your plans. The key is to clarify your wishes and settle areas of potential conflict long before you pass. It is also important that you regularly review and update your will, your trusts, and your beneficiary designations.
Making Sure Your Property Will Be Distributed Correctly
An up-to-date will or trust is an important first step in ensuring that your property actually passes to the people you want to receive your assets. However, it’s not the only step. Retirement plan accounts, life insurance policies, and certain other assets may allow you to designate a beneficiary. Here are some specifics.
Retirement Plan Accounts
In general, married retirement plan participants are required to name their spouse as the primary beneficiary of a qualified plan account. The exception is if the spouse signs the required type of consent waiving his or her rights to the plan assets.
If you have one or more retirement plan accounts, it is important that you review your beneficiary designations whenever there has been a major life event. For example, marriage, divorce, or the death of a named beneficiary may require you to update your beneficiaries. Similarly, if you have a new child or grandchild that you want to name as a secondary beneficiary, you will have to update your beneficiary designations. Failing to do so can have unintended consequences. For example, if you name your spouse as beneficiary of your retirement plan and later divorce that spouse, he or she may be entitled to receive your plan assets when you die if you fail to change your beneficiary designation.
Life Insurance Policies
You are generally required to name a beneficiary or beneficiaries when you first buy a life insurance policy. Generally, the proceeds of your life insurance policy will be paid to whomever you designated as beneficiary in your policy. That’s the case even if you name someone else in your will to receive the proceeds of your life insurance policy.
Certain Other Assets
There are other assets that can pass through beneficiary designations. For example, if you bought company stock through an employee stock purchase plan, you may be able to designate a beneficiary for that stock. In addition, you may be permitted to designate a beneficiary to exercise any stock options you have within a specified period after your death.
Estate planning is complex. It is particularly complex when the estate’s assets are substantial. The help of a financial professional experienced in estate planning is essential if you are unsure about the best ways to pass on your assets in an equitable way and ensure family harmony.
