Retirement · September 14, 2020

Passing on Wealth to Children, Causes and Trusts

Maybe you've been putting money into your 401(k) since you started working. Or perhaps you have substantial assets—these might include homes and other major property, a portfolio of investments that have been growing over time or savings that you've been building for decades.

Making sure your wealth goes to the people, organizations or causes of your choosing is a challenge anyone with any amount of assets may face. Following some best practices for passing on wealth can help ensure you leave behind the legacy you want.


Don't underestimate

One of the biggest mistakes people make when passing on wealth is underestimating their assets. Even if you don't consider yourself a wealthy person, there may be more to your asset base than you think.

The first step is to do a fair and transparent assessment of your current assets—as well as what your assets will be in 5 or 10 years. Planning how you'll be passing on your wealth is best done far in advance.

If you have children, or causes that are near and dear to your heart, it's never too early to make an assessment of your property, investments, cash on hand and any other valuables. Calling on your trusted financial advisor, or starting a new relationship with one, can be an important part of taking a look at your total picture.

Plan ahead on probate

Probate is the process of determining whether a will is legal and authentic. While probate at face value seems like a cut-and-dry legal issue, a lack of planning here can impede your ability to pass on wealth.

Any area of question will need to be legally reviewed, and those legal fees are billed to your estate. To avoid having your assets eaten up by legal fees—which will reduce the amount of wealth you're able to pass on—there are some practical and simple steps you can take.

First, create a will, even if it's a simple one. This step will save your beneficiaries and your estate substantial legal fees. Second, review all of your assets that will bypass probate—this includes 401(k) and pension plans, life insurance, health and medical savings accounts, or IRAs.

These assets must have designated beneficiaries to bypass probate. Double-check who you put down as your beneficiary when you opened your first 401(k). Confirm that your designated beneficiaries are accurate and reflect where you want these assets to go. Bear in mind that your will doesn't override the designated beneficiary on accounts like an IRA or a 401(k)—so if you divorce and remarry, for example, you'll need to make sure the correct beneficiaries are listed.

Trusts: a safety net for your family and causes

Trusts are one of the safest and most reliable ways to pass on wealth, whether it's to family members, philanthropic organizations or anyone else you want to ensure receives your assets. Trusts can also help you reduce your tax burden and save you money while you are still living.

Revocable trusts: flexibility now

A trust avoids probate and clearly outlines who gets what, and how they get it. For these two reasons alone, trusts can save your heirs substantial amounts of money. A revocable trust puts assets into a trust and controls all the assets there until you pass on your wealth.

Irrevocable trusts: reduce tax burdens

An irrevocable trust puts assets into a trust you can't touch. The benefit of this is that it removes your assets from being taxed and can save you a great deal of taxes while you're alive.

All trusts are private, which means that what you pass on and to whom isn't part of a public record. There are many different state and federal laws governing trusts. Consult with a licensed attorney to determine how to set up your trust.

Planning ahead for passing your wealth can help remove many of the headaches associated with inheritances. These circumstances are often already hard enough for the survivors, and a little thoughtful planning can eliminate additional pain. Evaluating your assets, confirming beneficiaries, creating a will and exploring trusts now will ensure passing on your wealth is a straightforward and beneficial process for those people and causes you care about.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.