Can’t Take It With You

“KIRBY: A man can’t give up his business.
GRANDPA: Why not? You’ve got all the money you need. You can’t take it with you.”
– George S. Kaufman, You Can’t Take It With You

Truer words were never spoken than those by Grandpa Martin Vanderhoff in Frank Capra’s 1038 film with the same name. Here’s the crucial implication: We all work hard to try to ensure that we do not outlive our assets and if we are successful, anything that is left over when we die has to go somewhere to someone, whether we like it or not.

Proactive Estate Planning is intended to create a formal structure and transparency around the transfer of assets and is a very important part of the Financial Planning process. Oftentimes the most difficult part of the process are the conversations about who to list on what, what’s fair, what are the needs and ages of different potential beneficiaries, and how this will all impact family dynamics when you’re gone. These four questions are a good place to start:

  1. To whom do you want to leave assets? It’s your money, house, car, jewelry, etc. so you are free to leave them to whomever you want! Generally, people leave assets to their surviving spouse and then kids when both spouses are deceased. Some people leave assets to charity or other relatives or friends. There is no right or wrong answer here, but remember, if you don’t decide who assets should go to and make it clear in a Will, Trust, or beneficiary designation, the State will decide for you!
  2. What assets should be given? Different assets are transferred to beneficiaries differently so it’s worth taking into account various account types when creating a plan. 401ks, IRAs, Roth IRAs, Annuity contracts, life insurance policies, homes, rental property, cash from the bank, etc. are all treated differently. For instance, if you have two children with a large disparity in their income, it may be a good idea to leave an after-tax account or Roth IRA to the one with higher income and pretax assets to the one with lower income to keep more in their pockets overall.
  3. When should the assets be given? For most people, assets are transferred to beneficiaries at death, but there are some circumstances in which a Trust or other means would be able to protect assets until they are appropriate to designate to a specific individual such as a child or someone with special needs. Once you realize that you will not outlive your assets, you could choose to begin distributing to the next generation or charities through annual gifting strategies so that you can see how the trickle down of your wealth is blessing those around you.
  4. How should you make your intentions known? The easiest and cheapest way to transfer assets is by having direct beneficiary designations listed on all accounts. Trusts are a bit more expensive, but are a great way to make intentions clear since they can include detailed language about specific accounts, division percentages, distribution timing, etc. Assets that don’t have direct beneficiaries listed and are not held in trust will be pushed through probate which is a process that is governed by your will as interpreted by your name Executor and the State court system.

Once you have a plan, it’s important to remember to update account titling to correctly reflect the plan goals and revisit the plan every 5-10 years to make any necessary updates due to law and account changes! At Total Wealth Planning we help our clients every day answer these important and at times stressful questions. Who’s helping you with your Estate Plan?

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