Who Will Be the Beneficiaries of Your Wealth?

An adult daughter has her arm around her mother as they smile at each other while sitting on the sofa. — (Image credit: Getty Images)

When people think of estate planning, they often associate it with creating a will or trust. But even before you decide what documents to draft, you should first articulate your goals. Who do you want to be the beneficiaries of your wealth, and when do you want them to receive it? For some people, it might be easy to figure this out. But for others, especially those who do not have children or relatives they want to provide for or charities they’d like to support, it can be much more difficult.

Listing out your beneficiaries is an important first step in your estate plan. It can help ensure that you’re including everyone you intend to share your wealth with and can also provide direction on which estate planning documents you may need or approaches you may want to take.

There are generally four categories that you can give money to: You can spend it on yourself, you can give it to other people, you can give it to charity, or you can give it to the government in the form of taxes (not an attractive option for some). Let’s look at the considerations for each:

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1. You and your spouse.

Maybe it’s a goal for you to spend all of your wealth during your lifetime. In this case, you would be the beneficiary of your wealth. Or perhaps you have a spouse, and you both plan to spend all of your money throughout your joint lives. It’s still a good idea to include someone to inherit whatever wealth may be left when you’re gone. Most people typically don’t pass away the moment after they’ve spent their very last cent.

2. Friends and family.

After you’ve provided for yourself, you may want to provide for relatives or close friends. This could include children, future descendants like grandchildren and great-grandchildren, other relatives or other people you want to give money to. You can choose to leave assets to these individuals only after your and your spouse’s deaths, or you can give these assets during your lifetime. Of course, you should only give away assets during your lifetime that neither you nor your spouse will need. You can work with an adviser to analyze your various resources and goals to help determine the likelihood that you’ll need certain assets.

Your estate planning shouldn’t be a secret. It’s important to communicate your wishes to your beneficiaries during your lifetime. Some parents shield their children from their wealth. But in many cases, the discovery of a significantly larger or smaller net worth than expected upon a parent’s passing comes as a major surprise and can even be emotional. If you have much more wealth than your children are aware of, they could be overwhelmed or unprepared to manage it when you pass.

3. Charity.

Charities can also be beneficiaries of wealth, during your lifetime, after your passing or both. There are a number of ways to incorporate your charitable goals into your broader wealth plan. You should first define those charitable goals and understand your motivations. Perhaps you want to contribute to a specific cause for personal reasons, or maybe you want a particular charity to be a component of your family legacy. Often, contributing toward charitable goals during your lifetime can provide tax benefits.

The first step is identifying whether you want charity to be a beneficiary of your wealth. Long-term planning can help you determine whether — and how much — it makes sense to give during your lifetime based on your situation and personal goals.

4. Government.

The government is the last potential beneficiary of your wealth. This can be in the form of annual income, corporate or other taxes, gift taxes if you give more than your exemption during your lifetime, or estate taxes upon your passing. Some people might want to minimize tax expenses while living, but it’s important to keep in mind that doing so may reduce the amount of wealth left to your friends and family after your death.

When listing out the beneficiaries of your wealth, you should really think about which of these four are most important to you. People often need to reconcile competing priorities, and this can help you think through the potential trade-offs. For example, charitable contributions might decrease your tax bill, but could also reduce how much you leave to family or friends.

Once you’ve decided on the beneficiaries of your wealth, you should determine how and when you want them to receive their share. You might need to consider different strategies or investment allocations that are most appropriate for each of your various goals. You should consult with an estate planning attorney or tax professional to discuss these priorities.

Outlining goals for your wealth is a crucial first step in estate planning. The process can feel daunting, but you don’t need to approach it alone. You can partner with an adviser to help build a plan for the legacy you want to leave behind.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.

Disclaimer

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.

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Adam leads J.P. Morgan Wealth Management's Wealth Planning and Advice team, which is responsible for wealth planning, thought leadership and strategic planning for individual clients. This national team of former practicing lawyers provides experience in estate and tax planning strategies, retirement planning, restricted and control stock and stock option management, business succession planning, pre- and post-transactional planning, concentrated position management and other personal planning strategies. The team provides internal training to the J.P. Morgan Wealth Management sales force on these topics and also creates content for distribution to the public.