7 Ways to Pass Wealth to Your Heirs

Death and taxes, the only things guaranteed in life.

Wow, that is an old maxim that is anything but uplifting; one that probably won’t bring a smile to your face or that of most others. What a dreary thought and outlook. For good reason.

While death does come to us all, as do taxes, there are actually beneficial things that are “guaranteed” when it comes to your assets, such as the ability to pass some, or even a large portion of the wealth you’ve accumulated, to the people you care about.

This article focuses on a number of what are many options you can utilize when it comes to passing on your wealth to loved ones when the time comes, ensuring your hard work and desire to take care of your beneficiaries after your passing does occur as you plan.

Introduction

You’ve worked hard for years in order to create a life for your family and yourself. All the time seeking to provide an ideal standard of living and security that is as bulletproof as is possible.

Afterall, whether that be many years into the future or unexpectedly near-term, your day will come. And when it does you probably want to have the peace of mind that you have done all you can to provide for your family and other beneficiaries upon your passing.

When that time comes it’s a safe bet you wish to pass on the bulk of the wealth you’ve created in the simplest, smoothest way possible. Unfortunately, the government, and even the courts, can stand in the way of that happening.

The good news is that with some proper forethought, planning, and the implementation of strategies and tools, you can achieve your goal of passing the majority of the assets on to the very people who you care most about, even after your death.

While there are actually many approaches when it comes to doing so,  we wanted to provide a handful of pretty straightforward ways to pass on your wealth to your heirs upon your passing.

Have a Will

Having a will in place is the most straightforward action you can take to ensure your assets go to the beneficiaries you want to receive them. Importantly, you can designate the manner in which this will occur.

An example would be that of passing on your home, but designating who will receive the home to live in to avoid issues. The others will then receive their value of the home in another manner designated in the will.

Using a will helps ensure your assets pass on without having to go through probate, which can be costly for your beneficiaries.

Having a will in place allows the estate to be dealt with in an expedited, efficient and less costly manner, ensuring your beneficiaries are able to take possession of what you’ve passed on to them in the most expedient manner.

Life Insurance

A long-utilized strategy is that of using life insurance. You purchase and pay the premiums of the policy and upon your passing the death benefit is paid out to the beneficiaries you’ve designated.

Utilizing a whole or universal life policy (forms of permanent life), each of which offer different options, can actually help you accumulate cash value in the policy that will grow and that you can borrow against while still alive.

And there is no termination age or date (like with a term-life policy) – as long as you continue to pay the premiums the insurer will pay out the death benefit upon passing, no matter what age that occurs.

Generally speaking, the proceeds of the death benefit paid out to each beneficiary is free of income and estate tax, although there are certain exceptions you will want to talk with your financial advisor or the insurer about in advance of purchasing such a policy.

IRA or 401(k)

Good chance you’ve probably taken advantage of, or at least know about, qualified retirement accounts that allow your money to grow tax-deferred. Examples include individual retirement accounts (IRAs) or employer-sponsored plans, such as a 401(k).

These accounts are great for growing your assets over time, providing you the ability to take advantage of tax deferral and compound interest over many years. And you can continue to make contributions for as many years as you’d like, keeping in mind that you are still subject to required minimum distributions (RMDs).

According to the Internal Revenue Service (IRS), in terms of passing on wealth to your heirs, you can make your spouse the beneficiary of the account. When you pass they are able to roll the assets directly to their own IRA or 401(k), take distribution (if needed – which will be taxed), or if they are in a position to do so they can continue to contribute to the original account for as long as they want or are able to do so.

For non-spousal beneficiaries, they can continue to contribute to the account for up to 10 years before they must take distribution of the account assets, which will be taxed at that time.

A good alternative is to use a Roth IRA vehicle. The contributions are made using after-tax dollars, but the interest grows tax-free thereafter. Upon passing your spouse takes control of the account. A spouse can continue to contribute for as long as they want and there is no RMD requirement.

Non-spousal beneficiaries must take distributions and deplete the account within 10 years. There are several eligibility requirements, such as being a minor child of the account holder, disabled or chronically ill, or be within 10 years of the age of the account holder.

Passing On Your Home

For many people, their home is their most valuable consolidated asset. Passing on their home is a great way to pass their wealth to heirs.

The beneficiaries can in turn use that asset in different ways, such as moving into the home, leasing it out to create a stream of property income, selling it, and more.

There are a couple things to be aware of when passing on your home. The beneficiary will become responsible for taxes and other fees, as well as maintenance, all of which can add up yearly and over time.

Additionally, if you are passing on the home to multiple heirs, issues such as who will control or actually live in the home will be introduced, which can often create strife among your beneficiaries. To avoid such issues you need to make decisions in advance and clearly spell them out in your will.

An example would be using other assets to compensate a beneficiary who won’t be taking possession of your home upon passing. Life insurance policies are one such strategy.

Annuities

When it comes to utilizing a vehicle that is capable of growing your wealth over your lifetime in a tax-advantaged manner, while at the same time providing various types of life benefits, as well as a death benefit, annuities can be a great choice.

There are various forms of annuities, including immediate, fixed income, fixed indexed (FIA), variable, and more.

We often recommend FIAs, given they offer the ability to grow and take advantage of market returns, while protecting your assets against markets downturns and losses. They pay income for a set period or up to lifetime, even for your spouse, ensuring you can’t outlive your assets.

Moreover, their growth is tax-deferred, with no taxes due until you take distribution. And they can offer a death benefit which pays out unspent funds to your beneficiaries upon your passing.

Given the benefits offered by an FIA, as well as some other annuities, they can be a very good vehicle to help you increase your wealth and pass it on to your heirs.

UTMA and UGMA for Minors

When it comes to passing on a portion of your wealth to minors, such as grandkids and even great-grandkids, Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act are statutory custodial savings accounts designed specifically for passing on wealth to beneficiaries who are not of legal age.

You can fund these accounts to the fullest extent you desire and have control over them for the benefit of the child until they reach legal age – this generally varies from age 18 to 21, depending on where you live.

An added benefit is the fact that given the assets placed into the account are owned by the child, tax treatment will be more advantageous given their tax rate is generally lower than those of their parents, had the funds been placed in their name.

529 College Education Plan

Another manner in which you can pass wealth on to minor heirs is through the funding of a 529 College Savings Plan. This type of account enables you to use a portion of your wealth to save money for the beneficiary.

There are many benefits to this type of plan, including the fact that earnings grow tax free and there is no Federal (or state, depending on where you live) tax owed if used for most college-related expenses, according to Saving For College.

Additionally, you can contribute up to $17,000 in 2023 before the funds must be reported against your lifetime gift exemption, which is almost $13 million currently.

One other benefit of note is the fact that unlike the aforementioned custodial accounts, where control cedes to the beneficiary once they attain legal age, 529 Plans are owned by you, so you control when and in what manner the funds are used.

If the beneficiary elects not to go to college, you could actually use the funds on a tax-free basis yourself to go back to school in your retirement – something more seniors are electing to do now.

Estate Planning

While some things are easy enough to do on your own, such as setting up custodial accounts for minors and 529 College Education Plans, legacy issues, such as passing on your wealth in the most efficient, tax-free/reduced and expedited manner, is in fact very complicated.

There are myriad Federal and state laws and taxes that come into play that can encumber and even severely limit the value of the assets you seek to pass on to your beneficiaries. They can leave you heirs tied up in probate and hamstrung with fees, taxes and other expenses.

To avoid the many issues and pitfalls that can occur when your time comes, one of the smartest things you can do for yourself and the beneficiaries you wish to care for after you pass is that of creating a solid estate plan that address the many issues involved.

To that end, you need to work with a qualified estate planner who can craft a customized plan capable of dealing with your unique circumstances and that incorporates tools, strategies (e.g., trust strategies to protect assets from creditors) and assets.

Conclusion

Let’s face it, taking time to think about our mortality and existence on earth and with our loved ones is never easy.

In fact, according to Statista, a German-based research and data company, just 11-percent of people actually spend time in their daily lives thinking about death.

When you think about it, that’s probably not surprising – most of us are busy thinking about life and don’t want to spend much time contemplating our passing.

Unfortunately, when it comes to the wealth you’ve created for yourself and your family, there can be serious consequences in not taking the time or planning on how to pass the majority of those assets you’ve acquired to the very people you wish to receive them upon your death.

We can help you in this critical process and then help create the plan that will best serve you and your beneficiaries. Providing you with peace of mind that when you pass they will be taken care of in the manner you envision.

At Oak Harvest Financial Group, in everything we do we incorporate a holistic approach that considers all your assets, tools and accounts, with a goal of providing a comprehensive plan built specific to your needs and goals in retirement – especially when it comes to passing your wealth.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today.