Discover how to properly get your estate planning order in order to ensure that your final wishes are carried out and that your legacy stays intact.
For some people, it’s very important that they leave something behind for their grandchildren or for a favorite charity. In fact, 30% believe their legacy will lie in charitable acts and donations, and 26% seek to accumulate personal wealth for future generations, according to a survey from BMO Wealth Management.
But even if you have the best of intentions, it takes some deliberate planning to make your wishes a reality. Follow these steps to make sure your legacy is what you want it to be:
Get Your Estate Planning in Order
If you have dreams for the assets you’re leaving behind, it’s imperative that you complete your estate planning, including a will. In your will, you can designate to whom you wish to leave various items or assets, though it’s worth noting that your spouse often has inheritance rights to at least part of your estate.
If you’re looking to leave assets to minor children, you’ll need to name a custodian or consult an estate attorney to create a trust, as minor children often can’t receive property.
If you plan to leave assets to a charity, you can make a bequest to leave a specific amount, percentage, residuary or other portion of your estate to a charitable organization. If you’re hoping to do this, have a conversation with the organization to find out whether they’re prepared to receive your gift and how it will be used.
Keep Beneficiaries Updated
Many people don’t realize that the named beneficiaries in your life insurance, annuities and retirement accounts trump any notes you’ve made in your will for those assets. This is often an administrative detail people complete when they open an account or purchase a policy, but they never revisit it.
Put a reminder in your calendar every year or every three to five years to check your beneficiaries on major accounts. (Consider what would happen if you got divorced and never changed your ex-spouse as your beneficiary.) This is especially important if there have been big life changes, such as a marriage, second marriage, divorce, birth or death.
Note: You can designate a charity as your beneficiary on these accounts as well.
Create a Trust
If you want to leave assets to small children, or you'd like more control over how your assets are used after you die, a trust can help. You can transfer your assets to the trust, name a trustee who's tasked with managing the assets, and dictate the rules under which the assets are distributed. A trust can provide for the needs of a disabled child, for example. In addition, all assets within a trust skip the probate process. An estate attorney can help you set up a trust that meets your needs.
Buy Permanent Insurance
Permanent insurance, such as a whole life insurance policy, lasts for your entire life if you pay the premiums—and then the benefit goes to your named beneficiaries when you die. If you can pay the premiums, this can be a reasonable way to leave a sizable gift to your loved ones or a favorite charity.
As a plus, a permanent life insurance policy can often be borrowed against if you need the money before you die. Any loan you take from your policy will reduce the death benefit accordingly.
There are different kinds of life insurance policies available, including a survivorship policy that insures the lives of two people. This is typically used to ensure a married couple, and it pays a benefit after the second covered person has died. The advantage is that this policy is often much less expensive than a normal permanent policy. The disadvantage is that the surviving spouse must continue to pay the premiums after the first spouse has died.
Use Strategic Gifting
If you want to start distributing your estate before you die, you can gift money or assets to loved ones or charity each year. In 2020, you’re allowed to give up to $15,000 per year per individual without triggering any gift taxes. Your spouse or partner can also do this, so the two of you can give up to $30,000 per year per child without ramifications.
This has the added benefit of shrinking the size of your estate while you’re still alive, reducing the amount of assets that would be subject to estate taxes after your death.
There are a variety of ways to leave something behind for loved ones or for an organization you wish to continue to fund. An estate attorney can advise you on the many methods of doing this and help you design an estate plan that supports your goals.