One aspect of financial planning that can be easily overlooked is designating your beneficiaries. These are the people or organizations that inherit assets from your estate when you pass away.
Many people assume their assets will automatically go to their spouse, children, or other family. However, much of this depends on your personal circumstances and your state laws. If no beneficiaries are listed in your plan, your state could inherit your assets and make decisions that go against your wishes. Beneficiary designation is integral to help establish your legacy, control where your money goes, and provide a clear plan for family members to follow after your death. While it’s best to consult with your attorney when choosing beneficiaries, in this article I’ve provided four things to consider from a financial perspective so you can feel more confident that your assets will end up in the right hands.
Choosing Beneficiaries: What to Consider
1. Age of the Beneficiary
Is your beneficiary younger than 18 or unable to manage their own finances due to mental capacity or a disability? Consult with an attorney about setting up a trust and designating a custodian to manage the person’s inheritance until they reach a certain age. This can help ensure the funds are handled responsibly and in accordance with state and federal laws.
2. Tax Implications
When designating a beneficiary, you’ll want to minimize the amount of taxes they have to pay on their inheritance. Chat with your financial advisor about how each of your assets may be taxed and what tax diversification strategies you can implement to help minimize the tax burden when your beneficiary receives your gift.
3. Charitable Giving
Speaking of tax diversification, another thing to consider is giving some of your assets to charity. This could be a university, church, or other nonprofit organization whose work aligns with your values. In addition to receiving tax benefits, designating a charity as a beneficiary also helps establish your legacy.
4. Financial Need
Lastly, ask yourself who actually needs the money. If there is someone whose financial situation could benefit from your inheritance, consider designating them instead of someone who is already wealthy.
These are only a few considerations you should make when designating beneficiaries to your estate. A lot of factors will depend on your individual situation. Taking the time to think carefully about your decision can help you feel more at ease about the future. Whenever you are ready to start this essential process, our financial advisors at TruStone Wealth Management will be here to help you navigate the financial side of creating an estate plan and collaborate with your attorney every step of the way. Contact us today!
I'm here to help you feel more confident about your financial future.
Learn more about me
Read more articles by Mark Presteng