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Answer these 7 Questions to Protect Your Heirs and Estate

The day will come when all of us will pass, and what happens then will either be something of our choosing or a consequence of us not making a choice.

By Filipe De Barros Gusmão, AAMS

Planning for the future can get your heart pounding and your mind racing as you think about the possibilities. We often live life like the days are endless, and tomorrow is always around the corner. I will be the first to tell you that there’s nothing wrong with living with that fervor, but what happens when you’re gone?

Filipe Gusmao

Some of us arrive at this thought earlier than others by thinking through the consequences for the one’s dependent on us financially or emotionally. Others might not have anyone dependent on them, but instead have those who they wish to leave a legacy to once they are gone. The answer to this question will vary greatly by individual but one fact remains the same – the day will come when all of us will pass, and what happens then will either be something of our choosing or a consequence of us not making a choice.

So, you have asked yourself the question, now what? Here are seven key points to consider:

1. Does anyone currently depend on your income?

With your income gone, life could be drastically different for your dependents without a solution in place. Protecting against the loss of your life, which is typically accomplished using insurance, could give your dependents the windfall they need to get through financially in the worst of times.

2. Are any of your dependent’s minors?

Designating who you want to raise your children if you pass away, through a will, keeps the choice in your hands now and out of the courts later. Further to a will, if your minor dependent stands to inherit assets you can ensure your guidelines for distribution are followed when you pass with a known cost by establishing a trust now, instead of allowing the courts to create one and bill your estate post-death.

3. If married, are all your financial accounts, that are able, in joint name?

Joint account holders are the de facto beneficiary for the account if one person passes since the other will then become the full account owner, making this one of the simplest ways to accomplish a change of account registration post death. Keeping things simple now could make things simple for your spouse later.

4. Do you have beneficiaries and contingent beneficiaries listed on all the assets for which they can be named?

Retirement accounts can have beneficiaries, bank accounts can have PODs (Payable on Death), investment accounts can have TODs (Transfer on Death), and houses (depending on your state) can have ELEDs/TOD deeds (enhanced life estate deeds). All of these are simply a way to designate who inherits an asset if something were to happen to you. Going through the process of designating your beneficiaries directly on the account, policy, deed, etc., instead of just in a will, and keeping those designations up to date, will ensure your estate transfer post-death occurs per your wishes and avoids the potentially costly/lengthy probate process.

5. Do you have specific distribution instructions you wish to be followed for your assets after you pass?

If an heir inherits your assets as a beneficiary, they will either receive it in-kind or as a lump sum depending on the asset, which grants them full ownership from that day forward. If you wish to place guidelines for the distribution of your assets, then thinking through your wishes now and establishing a trust with your direct instructions will ensure that your wishes are carried out when you’re gone.

6. Is your wealth structured in a way that will have the least tax implications for your heirs?

Some might not be concerned about the tax consequences to their heirs due to the way their wealth is structured, because, after all, you are giving them something they would not otherwise have. However, most, if given the option of overpaying in taxes versus leaving more to their heirs, would logically choose the latter.

To answer this question you, along with your advisors, will likely have to do a deep dive into your full financial picture, as well as that of your heirs, to establish which assets will get the benefit of a stepped-up basis when you pass, which will be taxable income to your heirs, if your will incur estate taxes, how much additional taxable income per year is the most tax efficient for your heirs, and what strategies could be put into place now to minimize taxable income to your heirs, e.g., using distributions from an IRA to fund a life insurance policy, helping to manage the tax liability and maximize the amount that passes to beneficiaries free of income and estate taxes.

7. Have you thought about your wishes for funeral, cremation, and burial arrangements?

While going through the process of pre-planning and funding your end-of-life arrangements can be an uncomfortable experience, it saves your family from having to do the same all while grieving your passing. Depending on how specific and costly your plans are you can accomplish your wishes by purchasing an all-inclusive package from a funeral home, contracting an end-of-life specialist to help you structure and fund your plans, and/or designating assets within your estate to cover end-of-life expenses, e.g., a funeral trust.

While this is not an exhaustive list, thinking through these seven questions while working with your advisors, will undoubtedly get you closer to knowing what happens with the financial lives of your heirs when you’re gone. This thought exercise is not an easy one to get though but the sooner in life you do the faster you can take comfort in knowing that you have a plan for the worst of circumstances.

About the author: Filipe De Barros Gusmão, AAMS®

Filipe is a financial planner at Gold Tree Financial a family financial management services firm that provides comprehensive financial, tax, and estate planning services. Filipe takes pride in knowing that he has helped retirees, business owners, growing families, and professional pursue their financial dreams. Learn more at www.GTFJax.com .

Securities offered through Concourse Financial Group Securities, Inc. (CFGS), Member FINRA/SIPC. Advisory services offered through Concourse Financial Group Advisors, a DBA for CFGS, a Registered Investment Advisor. Gold Tree Financial, Inc. is independent of Concourse Financial Group Securities, Inc. Gold Tree Financial, Inc. and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.