Pass Your Portfolio Forward: 3 Estate Planning Tips

Though most people think of their stock portfolio as existing for their own benefit, one of the greatest benefits of investing is that you can acquire assets that will benefit your children or other family members down the line. To pass on those resources, however, your investment portfolio needs to be included as part of an estate plan—and that takes planning.

Understanding Stock Transfers

When an individual dies, stocks can only be transferred if the original owner has been made appropriate arrangements for them, unless they are owned jointly by spouses; in that case, the living spouse typically acquires sole ownership. For individually owned stocks, however, the easiest way to ensure that stocks are transferred to an appropriate individual is by naming a beneficiary through the Uniform Transfer on Death Security Registration Act. If you intend for a single person to inherit your stocks, naming them your transfer-on-death beneficiary is the simplest way to ensure this will happen with minimal legal wrangling.

Distribution of Resources

If, on the other hand, you intend to distribute your stocks and other investment holdings to several individuals, it's important that you develop a comprehensive estate plan. In your estate plan, you can establish trusts for specific assets, assigning who will inherit different parts of your holdings. You can also appoint a financial power of attorney to handle your assets in the event of a serious disability. If these trusts include volatile holdings, be sure to review them regularly; otherwise, beneficiaries may receive an unfunded trust after your death, which can force them to return to probate court.

Another reason to carefully review your estate planning documents is to ensure that you are distributing your possessions based on current family composition. In many cases, wills and estate plans are opened at the time of death and still contain the names of beneficiaries who had previously died, were members of the family by marriages that have since dissolved, or that equally distribute funds among grandchildren, but exclude those more recently born.

Discussing Your Plans

Investing is a lifelong process, yet when planning trusts and the distribution of inheritance, the future of those funds is rarely discussed—and it may be one of the reasons why inheritance funds are largely spent within the first few months after its receipt. One way to help your gift last longer is to discuss this gift long before your death and help prime those who will be inheriting your investments. This includes discussing your investment strategy, such as whether you invest with the Buffett-Munger screener, the Historical Low Price/Sales portfolio, or another value approach, as well as talking about common concerns like volatility and diversification. Just because you have chosen a recipient for your assets doesn't mean they will take the time to educate themselves regarding stock trading norms.

Even if they are not a primary beneficiary of your holdings, you should also discuss your finances with whomever you choose to name as the trustee for your estate. In fact, it's often best that your trustee not be one of your direct beneficiaries, as the trustee must act impartially in administering your estate. Often, it's best to appoint a lawyer or accountant to this role, as they have the financial savvy to carry out this role. Often, the trustee needs to file taxes, negotiate with banks, and may even choose investment managers to handle trust funds belonging to underage beneficiaries. Few family members are liable to be up to this task, and there's no reason to put this type of strain on them in the aftermath of a major loss.

Your estate plan is a living document, and that means you should write it early and tend it regularly. This is how you ensure your investments outlive you – by planning for their afterlife in conjunction with those who will benefit from those assets.

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