New York State Funeral Directors Association

Leaving An Inheritance

One of the luxuries of financial stability is being able to pass on something to your family.

Many parents hope that these financial gifts will open up new opportunities for their children and grandchildren, helping them pay for college, buy a home or achieve other goals in their lives.

But building up this wealth is only part of the answer when seeking to leave an inheritance for loved ones.

Whether through life insurance, retirement accounts or other savings and inheritance methods, the decision you make affects both the taxes owed on your money and flexibility your heirs will have in choosing how to use the money.

If you want to make sure your inheritance makes a real difference in the lives of your heirs, consider these five options for passing on wealth:

BUY A LIFE INSURANCE POLICY

When an estate owner passes away, there are costs to consider. Funeral costs, outstanding debts, mortgages and other expenses need to be paid off before an inheritance can be dispersed.

If you own a large estate, you may also owe estate taxes on your savings.

A life insurance policy is typically used to cover these expected costs, ensuring that your beneficiaries receive the amount of wealth you've committed to them.

In most cases, the payout from life insurance is also tax-free, providing additional incentive to take out a policy.

OPEN A 529 PLAN

If you have children or grandchildren who are likely to attend college, a 529 plan is a great investment vehicle to use when passing on wealth. Consider handing down recipes to younger generations in your family

The contributions to these accounts are tax-deferred, and if the funds are used for college tuition or other qualifying costs, they're tax-free, too.

"Another benefit of a 529 plan, for inheritance purposes, is that you can front-load your deposits, instead of dealing with a fixed annual limit," said Michael A. Lanotte, Executive Director & CEO of the New York State Funeral Directors Association.

"This gives account owners the flexibility to make large, immediate deposits as soon as they have a wealth distribution plan in place."

NAME YOUR CHILDREN AS BENEFICIARIES OF RETIREMENT ACCOUNTS

If you have IRA, 401(k) and/or Thrift Savings Plan accounts, one of the easiest ways to pass on this wealth is to name a beneficiary for these funds. This allows the accounts to continue accumulating wealth over time.

Once the account owner passes away, the accounts can be divided up among the beneficiaries, in accordance with the allocation amounts you've established for each person.

PAY YOUR FUNERAL ARRANGEMENTS IN ADVANCE

Funeral arrangements can challenging for loved ones after a death. Creating funeral plans is taxing on loved ones who are already grieving.

One way to alleviate this financial and emotional difficulty is to complete your arrangements before you pass away.

"From a financial perspective, pre-planning creates peace of mind by eliminating one of the costs that can crop up after someone's passing," Lanotte said.

"And if it's your funeral, this approach also lets you choose the details of your ceremony, which also helps your family as they grieve."

ARRANGE ANNUAL GIFTS FOR BENEFICIARIES

If you have a large inheritance you'd like to pass on gradually over time, you're allowed to give up to $14,000 each year, or $28,000 if you're a married couple, to beneficiaries without having to pay any taxes on that money.

There's no limit to the number of people who can receive this gift, and no restrictions on what type of relationships are eligible.

If you're likely to pay estate taxes on your wealth, annual gifts can help lower that tax bill, ultimately increasing the amount of money you're able to pass on.

When it comes to managing your end-of-life finances, a little planning can go a long way.

Meet with a trusted financial advisor to discuss your financial circumstances and identify the most cost-effective strategies for passing on your wealth to the people you love.

Sources:
1 https://www.investopedia.com/university/estate-planning/estate-planning10.asp
2. https://seekingalpha.com/instablog/16243802-alpha-gen-capital/5069189-retirement-series-best-ways-leave-wealth-heirs


 

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