One of the most important steps for recent retirees is planning your estate. However, coordinating a wealth transfer is easier said than done, as the process comes with many financial and legal considerations. We’ve outlined five common misconceptions about transferring wealth that you may want to consider as you define your legacy.
Misconception 1: “Equal distribution is always fair.”
If you have multiple beneficiaries in mind for your estate, you may think the only fair thing to do is to divide all assets among them equally. While this is certainly an option, it may not always be the best one, as each beneficiary is a unique person with their own needs and circumstances.
For example, if one child works at the family business and is ready to take the reins, while the other works elsewhere, it may make sense to give your company to the former while providing the latter with other assets. Or, if one child moves in with you to take care of your medical needs, you may compensate them with a larger inheritance. You should work with your estate-planning attorney to develop a plan that best meets your goals for your beneficiaries.
Misconception #2: “My will is all that matters.”
Another common misconception is assuming that your assets will be divided based on your will. This is only partially true. Many assets, such as 401(k)s, IRAs, life insurance benefits and annuities, follow your beneficiary designation rather than the provisions of your will. And some assets that are owned jointly might transfer automatically to your joint owner(s) when you pass away. Aligning your will, your beneficiaries and the ownership of your assets can help ensure your wishes are carried out.
Misconception #3: “I don’t need to update my estate documents.”
Deciding who receives your assets may seem clear right now, but relationships change and so does your situation. If you experience a significant life event, such as the death of a loved one, a move, a divorce or remarriage, it’s important to update your documents. If you don’t update your will, your asset ownership and your beneficiaries, then a deceased family member or ex-spouse (depending on state law) may be in line to inherit your assets instead of who you intend.
As such, it’s important to regularly review your estate-planning documents with a legal professional to account for any personal or legal changes. An Edward Jones financial advisor can assist you in reviewing your situation, and a corporate fiduciary (such as Edward Jones Trust Company) can help you ensure the right assets go to the right people.
Misconception #4: “I can plan without talking to my beneficiaries.”
While you don’t legally need input from others to construct your will, having a conversation with your beneficiaries about what they can expect to receive may eliminate resentment or disagreements after you’ve passed. It may also help your beneficiaries better plan for their own financial futures. Based on your conversation, you may decide to modify your distribution provisions. For instance, you may have assumed one individual wanted a particular asset when, in fact, they didn’t.
Of course, the decision to receive input from your beneficiaries is completely up to you. An Edward Jones financial advisor can provide advice on how to talk to beneficiaries about this potentially sensitive subject.
Misconception #5: “There’s nothing I can do about taxes.”
Transferring assets to beneficiaries can come with a complex array of estate and inheritance taxes. It’s important to review the size and type of assets transferred and the possible federal and state tax consequences of your actions. Plus, these tax laws change over time, meaning an estate plan optimized to current laws may need adjusting at some point.
Your financial advisor can work with your professional team to help you create a flexible estate plan that can be adjusted in response to tax changes so you can reach your legacy goals and efficiently transfer your assets to your beneficiaries.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.