You have worked hard over the years to accumulate wealth, and you probably find it reassuring to know that after your death the assets you leave, will remain a source of support for your family, friends and the causes which are important for you. However, to ensure that your legacy when your heirs as you wish, you must make proper arrangements now. There are four basic ways to leave an inheritance: (a) by will, (2) of trust, (3) by the beneficiary designation, and (4) through common ownership schemes.
Wills
A will is the cornerstone of any estate plan. You must have a will regardless of how much your property is worth, and even if you have implemented other real estate planning strategies.
You can leave property by will in two ways: making specific bequests and make general legacy. A special heritage directs a particular piece of property to a specific person ("I leave Aunt Martha's diamond discuss with my niece, Jen). A general legacy is typically a percentage of property or property that is left after all specific bequests have been made. Typically, principal heirs receive general legacy ("I leave all the rest of my estate to my wife, Jane").
With a will, you can generally leave any property to whomever you want, with certain exceptions, including:
* Property passes under a beneficiary designation, even if you name a second beneficiary for the same property in your will
* Property owned jointly with rights of survivors passes directly to joint owner
* Property in a trust passes according to the terms of the trust
* Your surviving spouse is entitled to a statutory share (eg, 50%) of your property, whatever you leave him or her in your will
* Smaller children have some inheritance
* State law may limit your ability to leave property to charities
Warning: Leaving property directly to minor children is problematic. You name a custodian or property guardian, or use a trust.
Trusts
You can also leave property to your heirs by a trust. Trust property passes directly to the trust beneficiaries under the trust terms. There are two basic types of trusts: (a) alive or is revoked, and (2) irreversible.
Living trusts are very flexible because you can change the terms of the trust (eg rename receivers) and the building of trust at any time. You can even change their minds by taking your property back and ending the trust.
An irrevocable trust, on the other hand, can not be changed or terminated except by its terms, but can be useful if you want to minimize estate taxes or protect your property from potential creditors.
You create a trust by executing a document called a trust agreement (you should have a lawyer draft any kind of confidence to be sure accomplishes what you want).
A trust can not distribute property that it owns, then you must also transfer ownership of your property to the name of the trust. Property without ownership documentation (eg, jewelry, tools, furniture), transferred to a trust by listing the points at a confidence timetable. Property ownership documents must be renamed or re-registered.
You must also name a trustee to administer the trust and manage the trust property. With a living trust, you can name yourself trustee, but you'll have to name a successor trustee who will transfer the property to your heirs after your death.
Tip: A living trust is also a good way to protect your property if you become incapacitated.
Beneficiary designations
Property that is contractual in nature, such as life insurance, annuities and retirement accounts, is transferred to heirs by beneficiary designation. Typically, all you have to do is fill out a form and sign it. Beneficiaries may be individuals or entities, such as a charitable organization or a trust, and you can name multiple beneficiaries to share the surplus. You should name primary and contingent beneficiaries.
Warning: You must not name minor children as beneficiaries. However, you can name a guardian to receive proceeds for the benefit of the minor child.
You should consider the income and estate tax ramifications to your heirs and your estate when naming a beneficiary. For example, proceeds your beneficiaries receive from life insurance is generally not subject to income tax while your beneficiaries have to pay income tax on income from tax-deferred pension plans (eg traditional IRAS). Ask your financial planning professional to determine if your recipient names will have the desired results.
Be sure to review your beneficiary designations when your circumstances change (eg marriage, divorce, death of beneficiary countries). You can not change the beneficiary of your will or trust. You must complete and sign a new beneficiary designation form.
Warning: Some receivers can not be changed. For example, a divorce decree provide that a former spouse will receive the proceeds.
Hint: Some bank accounts and investments also allows you to name someone to receive the asset at your death.
Joint ownership arrangements
Two (or more) people can own property on an equal footing, and death of one, the other becomes sole owner. This type of ownership called joint tenancy with rights of survivors (JTWRS). A JTWRS arrangement between spouses are generally known as the lease of a whole, and a handful of states have some form of joint ownership known as community ownership.
Caution: There is another type of joint ownership called tenancy in common where there is no right to survivors. Property held as tenants in common will not revert to a co-owner automatically, although you can let your interest in the property for your heirs in your will.
You may find common ownership are useful and practical with some forms of property, but may not be desirable to have all your belongings. For example, a single checking account that ensures that upon your death, an heir will have immediate access to needed cash. And owning an out-of-state residence in the community (eg a holiday home) can avoid a secondary bankruptcy court process in this state. But that may not be practical to own property jointly, the frequency of transactions are involved (eg, your investment portfolio or business assets) because you can use shareholder approval and signature for each transaction.
There are some other disadvantages to joint ownership, including: (1) your co-owner has immediate access to your property, (2) naming a person who is not your spouse as joint owner may trigger gift tax consequences, and (3) if the shareholder has debt problems can creditors go after the co-owner's share.
Caution: Unlike most other forms of property, a co-owner of your checking or savings account can withdraw the entire balance without your knowledge or consent.
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