Wealth transfer planning is known by a variety of different names, whether it’s legacy planning or inheritance planning – and you may think this type of planning is just for the affluent, but it’s not. The reality is that it’s important for everybody to consider wealth transfer planning, regardless of their net worth. The concept can be intimidating and may seem complex, but it doesn’t have to be.
So, what exactly is wealth transfer planning? It really boils down to making decisions today that help ensure your financial assets are passed on the way you want and to whom you want.
The following guide provides you with six steps to help you get started with your own wealth transfer plan. In addition to using this guide, you may want to consider working with a financial advisor, if you’re not already working with one. A financial advisor has the expertise and experience to explain in an easy-to-understand manner what you need to know and what you should consider for your situation.
Wealth transfer planning is about making sure your legacy expectations are in place and avoiding surprises for your loved ones when you pass away. Surprises can come in the form of unexpected tax bills, disputes among siblings or family members, and legal challenges.
The challenge with avoiding the unexpected is that we often don’t know what we don’t know. For example, do you know:
- that there is a gift tax exclusion that allows you to gift a certain amount of assets to individuals while you’re alive?
- how the 10-year inherited rule affects the future transfer and taxation of your retirement savings to your beneficiaries?
- who is responsible for paying your home mortgage or other debt when you pass away?
- if your heirs will have to pay an inheritance tax?
- what happens to the cost basis of your assets after your death?
- if your estate – or a portion of it – will be subject to probate?
1. Take an inventory
Create a list of all your assets and liabilities. Remember to include your non-financial assets and belongings too, such as your home, family heirlooms, cars, and other possessions. An inventory of your assets and liabilities will help you understand what you’ll need to live on and what possessions or financial assets you may want to pass on.
As part of the process, make sure you consolidate essential personal, medical, financial, and family information, so that it’s current and readily available when you or your family members need it. You can use this family records action planner to help you capture the information you need.
2. Talk with your partner and/or other loved ones
How you plan to live in retirement and the decisions you make about your future impact others, such as how you would like to receive care, should you need it. It can be beneficial to include your spouse or partner and adult children in future planning conversations so you’re all on the same page. For additional help with these conversations and key considerations, check out Starting important longevity planning conversations with family.
Also, this is a good time to determine who you would want to make healthcare and financial decisions for you if you were incapacitated.
3. Think about your future goals and wishes – and what’s important to you
Think about your retirement goals and what you want to accomplish with your wealth transfer plan. Ask yourself if you want to leave a bequest or inheritance or if you prefer to spend down as much of your savings as possible in retirement? If you’d like to leave a bequest, consider to whom you’d like to leave your assets to when you pass away. Also consider any specific goals or wishes you may have, such as funding a grandchild’s education, leaving money to non-family members, or leaving money to a charity or non-profit organization that means something to you.
Understanding your wealth transfer goals will help determine the strategies that can help maximize your bequests, minimize taxes, and avoid legal issues.
4. Document your wealth transfer wishes
It’s important to establish the legal documents and direction – not just verbal communication – that will help ensure your final wishes are followed. In this step of the planning process, you’ll want to engage the help of professionals, such as a financial advisor, estate planning attorney, and accountant.
Things to consider:
- Designating account beneficiaries
Review your financial and insurance accounts to make sure you have named beneficiaries and contingent beneficiaries, if applicable. To learn more about this, read The importance of beneficiary designations.
- Creating or updating your will
A will legally documents how you want your assets and possessions disbursed to your heirs. It also spells out any specific wishes you have regarding your end-of-life arrangements.
- Establishing a trust
A trust is a legal document that determines how your assets are managed and transferred.
- Creating a power of attorney (POA)
A POA grants somebody the right to legally make decisions on your behalf should you be unable to.
- Naming a healthcare proxy
A healthcare proxy allows you to designate who you want to make medical decisions for you if you can’t.
- Creating a living will (also known as an advance directive for healthcare)
A living will is a legal document that states your wishes for end-of-life medical care should you be incapacitated.
5. Communicate your final plan and introduce loved ones to the professionals supporting you
Let your family, loved ones, and other interested parties know about your final plans. They may need guidance in how to manage an inheritance and communication can also help avoid surprises down the road.
This would also be a suitable time to introduce your beneficiaries and loved ones to any professionals assisting with your wealth transfer planning, whether it be a financial advisor, attorney, accountant, or other specialist. Your professional team will be there to assist your loved ones and heirs when needed, and an introductory meeting could help facilitate future interactions and the smooth and efficient implementation of your wealth transfer plan.
6. Review your plan regularly
Things can change once your wealth transfer plan is in place. So be sure to revisit your plan every few years to account for any changes in your personal situation or your wishes. For example, a named heir or beneficiary may have passed away, tax laws could have changed, or you simply could have changed your mind about how you want to disburse your assets.
Planning for the future can be challenging, especially when preparing for what happens when you pass away. The good news is you don’t have to plan alone. A Corebridge financial professional can help guide you every step of the way as you create a wealth transfer plan that reflects your wishes and goals.
Get the dialogue started with your financial advisor or for help connecting with an advisor visit our Contact page.
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