Here is a scenario: your retirement plan is kicking in and you discover that you may have enough money to live comfortably for years and then some. You may be thinking about passing your remaining wealth on to your heirs. If so, you have options, but should consult a qualified tax attorney or accountant before proceeding.
Whether you are passing on a substantial wealth or a modest one, you may be concerned about how to properly pass along your wealth and have it go where, when, and to whom it is intended. If you are considering passing your inheritance to family members, remember the golden rule: communication. Give clear instructions on what to do with an inheritance; if not, family fortunes can be squandered because there are not clear lines of communication.
As with any financial planning, no matter what stage of life, it is important to plan as much as possible — especially so with an inheritance.
Once you have decided to pass along an inheritance, consider your options. One option is to put your investments into your heirs’ names – all the stocks and bonds and other investment vehicles in your portfolio.
Another option is to create a trust where the “grantor” (you) names a trustee who is responsible for distributing the assets to one or more “beneficiaries” (heirs) upon the grantor’s death. Most often, if the beneficiaries are minors, the grantor would not give them full control of the assets; a third-party trustee would be in charge, at least until they are of legal age.
An inheritance can take on many forms, and capital assets are just one of those forms; another form of inheritance is real estate. Similar to establishing a line of inheritance for capital assets, there are different ways that allow for the transfer of real estate. However, like any form of investment, be sure to do your research before talking to a professional.
A third option is building a trust with a plan for how you want your property distributed after your death. This option would require discussions with family members to determine whether anyone wants the property in the first place. If not, the property can be sold through the trust with the proceeds distributed accordingly.
Keep in mind while involved in this planning, that people are living much longer than in the past. As recently as 2013, those aged 65 or older made up only about 14 percent of the population in the U.S.; but it is expected that by the year 2040, the senior population will be more than one-fifth of all Americans. Along with longer life spans, of course, come unforeseeable costs. When discussing passing your wealth on to heirs, be sure to include this in your conversation.
Obviously, setting up your inheritance for a seamless transfer to your heirs has its share of complications. However, with any form of inheritance, communication is key. Taking the time to sit down with family members and heirs can be the wisest course of action you take. It is far better to resolve any potential issues now, rather than overwhelm your beneficiaries after you are gone. Of course, with any form of inheritance it is important to do your research and consult a professional.
Joseph Matthews is a Financial Advisor with the Wealth Management Division of Morgan Stanley in Fairfield. He can be reached at 203-319-5165 or by email at email@example.com. Follow Joe on Twitter @jmatthewsMS. The information contained in article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney LLC, member SIPC.