When reviewing your estate plan, how you distribute your assets to your beneficiaries isn’t always a simple decision. In addition to determining how to best divide assets among heirs, you must also think about how and when the beneficiaries can access their inheritance and then ensure that these provisions are outlined clearly in your estate planning documents.
With estate planning, every situation is unique, and what works well for one family might not work for another. While there is no right or wrong way to distribute an estate, there are a few considerations to keep in mind to help determine which strategy aligns best with your circumstances, values and goals.
Strategy #1: Leaving Assets Outright.
The most straightforward option when distributing an estate is to pass wealth to heirs outright, with no restrictions on how they access their inheritance. While this approach is often the simplest, it could have some drawbacks.
For example, for families of significant wealth, estate heirs may be encouraged to live off their inheritance rather than produce their own income. Potential outside risks must also be considered when there are no restrictions on accessing an inheritance, such as an heir getting a divorce.
While some families may be comfortable with this approach, it is generally discouraged when distributing significant wealth to younger family members or those who do not have experience managing large sums of money.
Sponsored Content
Strategy #2: Distributing Assets in Stages.
Distributing assets to heirs in stages allows them to manage their wealth without putting all their inheritance at risk at once. Families keep wealth in a trust and can choose how they want to distribute it. One example is to pay a percentage of the trust to the beneficiary when they reach a certain age, such as 10% when they turn 30, 20% when they turn 35 and so on.
Another option is to award the beneficiary when they achieve a certain goal, such as reaching an educational milestone.
Sponsored Content
Strategy #3: Leaving Assets in a Discretionary Lifetime Trust.
A more secure option is to leave assets in a discretionary lifetime trust, which would maintain the assets in a trust for the entire lifetime of the heirs. This approach offers the highest level of protection from outside risks such as divorces, lawsuits and poor money management.
Additionally, leaving assets in a lifetime trust allows a family to create a lasting legacy for future generations. While the beneficiaries must rely on the trustee’s discretion to make distributions, there is the opportunity to include specific instructions for the trustee, such as providing money to make a down payment on a home or to support a business venture.
Sponsored Content
Strategy #4: Combining Distribution Strategies.
A family may find that a combination of the above scenarios works best for them, where beneficiaries receive a certain amount or percentage of their inheritance upfront and leave the balance in trust in perpetuity. This approach allows heirs full access to a certain amount of money to support their lifestyle while pursuing their own ambitions without being wholly reliant on the trust.
Assessing Your Estate Plan
How you distribute your estate is an intentional process, determined by your personal and family situation.
Carefully considering and documenting which distribution strategy makes the most sense for you and your family is important, as it will have a lasting impact.
--
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Sponsored Content
-
Do You Really Need That Wine Cellar?Home Features Wine cellars are a popular feature in high-end houses. Will installing one in your home increase its value, or would you be better off with a cheaper solution?
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? Wrong
The wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last LongAccording to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond InvestorsHigh-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance AgentYour insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never OverlookThis estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.
-
The Four D's That Could Force You to Sell Your BusinessBusiness owners (or their heirs) can be rushed into a sale of their company if they haven't planned for a major change in circumstances — or the four D's.
