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Your property, including your financial assets, pass to your heirs in different ways. This article explores how to leave your estate to your loved ones in the most efficient way possible.
It’s more than writing a will
Title
Beneficiary designation
Do you remember filling out a beneficiary form when you enrolled in your retirement plan at work? This identifies who will receive the money from your plan account. Life insurance proceeds, IRAs, pension benefits, and annuity payments all pass to named beneficiaries. The same is true for the money in your plan account, the person you name as your plan beneficiary takes priority over your will.
Will
Wills often name who will receive personal possessions and family heirlooms, such as jewelry and furniture. A will also determines who will inherit property that you own solely. That might include a car, real estate, savings bonds, certificates of deposit, or investment accounts. If you die without a will, state law determines who will receive your assets.
Name your beneficiaries
A $400,000 mistake
Having the wrong beneficiary can be a costly mistake. William Kennedy, a DuPont employee, named his wife as his 401(k) plan beneficiary. In time they divorced. But he never changed the beneficiary for his plan account before he died.
The U.S. Supreme Court later decided that his election was binding. His ex-wife’s family got the money in his account, worth around $402,000.
Don’t let it happen to you
To prevent an error like this:
- Be sure you’ve named a beneficiary for your plan savings. If you haven’t, your money will pass to the default beneficiary stated in your plan’s rules.
- Review who you’ve named as your beneficiary—today, if possible.
- Change your beneficiary information right away if it’s outdated.
- Review your elections again if you marry, divorce, or have a child.
Plan ahead in case you get sick
Making your medical wishes known
A durable power of attorney for health care is a legal document that spells out the health care interventions you do—or do not—want. In the document, you name a person who is authorized to make medical decisions on your behalf.
A living will is a legal document that spells out your end-of-life medical wishes. In it, you also name someone who will confirm your choices to the medical staff in charge of your care.
Handling finances if you can’t
A durable power of attorney for property is a legal document that authorizes someone you name to manage your financial affairs if you become unable to care for yourself.
This power gives the person the right to control your property. So choose someone you fully trust, who is well organized and responsible. Discuss this document with an estate planner so that you give this person only the powers you want to give.
Gather your team
Executor
This person will handle the settlement of your estate—everything from cataloging your assets to paying your final bills, filing an estate tax return, and distributing your property as you instructed.
Guardian
If you have minor children, you’ll name the person you would want to raise them. Make sure you’re comfortable with the parenting style of anyone you choose as a guardian.
Trustee
If you create a trust for tax reasons or because a beneficiary needs professional money management, this person or institution will manage and distribute the assets of the trust. Your trustee should be someone whose judgment and integrity you can rely on.