Did you know that Baby Boomers will pass down an estimated $68 trillion in wealth in the coming decades?[1] You’ve worked hard for your money and likely want to see it passed down in the most efficient way possible for your loved one’s benefit. Unfortunately, costly mistakes are all too easy to make. Understand the basics first, and then create an estate plan.

A Will vs. a Trust

Wills and trusts are both important estate planning tools with important differences. A will ensures property is distributed after your passing, according to your wishes, while a trust goes into effect as soon as you create it. A trust allows a trustee to hold legal title and property for a beneficiary and can have certain terms and conditions attached. In the case of a revocable trust, the trustor maintains ownership of property held in the trust while alive. When the trustor passes away, the trust does not go through probate, whereas a will would.[2]

Know the Rules for Passing on Your Assets

Many people may not know that their will does not control who inherits all of their assets, such as retirement accounts, life insurance, and annuities. In order to pass these on, you must name a beneficiary for each retirement account, insurance policy, and annuity. If you don’t, these assets will likely be paid to your probate estate, possibly triggering income tax. Believe it or not, some people incorrectly name beneficiaries; don’t forget to distinguish family members of the same name with signifiers like Sr. and Jr. There could be other reasons to update your retirement account beneficiaries, such as marriage, divorce, or the birth of a new child or grandchild.

Communicate, Communicate, Communicate

Communication is crucial when preparing heirs to inherit wealth, and this includes discussing what they plan to do with the money. While it’s good for younger generations to educate themselves on their finances, they may run into trouble when investing on their own and fail to understand the complexities of diversification and rebalancing. Whether you have a will or a trust, it’s also important to explain why you’re making the decisions you are. In the case of a trust, make sure your loved ones understand the terms of the trust and who the trustee is.

We’re trusted financial professionals who can help you create a comprehensive retirement plan where your retirement income plan, tax minimization strategy, and estate plan all work together. Get in touch with us to find out how SHP Financial can help you create a financial plan for your retirement and the future. Click HERE to sign up for a time to talk with us about your estate planning and retirement needs.

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