Grow Financial Federal Credit Union
February 23, 2021

Estate Planning Basics: Wills, Trusts and More

You’ve worked hard over the years, and you probably find it comforting to know that after your death the assets you leave behind will continue to be a source of support for your family, friends and the causes that are important to you. To ensure that your legacy reaches your heirs as you intend, you must make the proper arrangements now. There are four basic ways to do this: by will, by trust, by beneficiary designation and by joint ownership arrangements.

Wills

A will is the cornerstone of any estate plan. You should have a will no matter how much your estate is worth, even if you’ve implemented other estate planning strategies.

You can leave property by will in two ways: making specific bequests and making general bequests.

Specific bequest: This directs a particular piece of property to a particular person. (“I leave Aunt Martha’s diamond broach to my niece, Jen.”)

General bequest: This is usually a percentage of property or property that is left over after all specific bequests have been made. Normally, principal heirs receive general bequests. (“I leave all the rest of my property to my wife, Jane.”)

With a will, you can generally leave any type of property to whomever you wish, with some exceptions, including:

  • Property will pass according to a beneficiary designation, even if you name a different beneficiary for the same property in your will.
  • Property owned jointly with rights of survivorship passes directly to the joint owner.
  • Property in a trust passes according to the terms of the trust.
  • Your surviving spouse has a right to a statutory share of your property, regardless of what you leave him or her in your will.
  • Children may have inheritance rights in certain states.

Trusts

You can also leave property to your heirs using a trust. Trust property passes directly to the trust beneficiaries according to the trust terms. There are two basic types: living (also called revocable) and irrevocable.

Living trusts: These are very flexible because you can change the terms of the trust (e.g., rename beneficiaries) and the property in the trust at any time. You can even change your mind by taking your property back and ending the trust.

Irrevocable trust: These, on the other hand, can’t be changed or ended except by its terms, but can be useful if you want to minimize estate taxes or protect your property from potential creditors.

You create a trust by executing a document called a trust agreement, and you should have an attorney draft any type of trust to be sure it accomplishes what you want.

Note: a trust can’t distribute property it does not own, so you must transfer ownership of your property to the name of the trust. Property without ownership documentation (such as jewelry, tools or furniture) is transferred to a trust by listing the items on a trust schedule. Property with ownership documents must be re-titled or re-registered.

You must also name a trustee to administer the trust and manage the trust property. With a living trust, you can name yourself trustee, but you’ll need to name a successor trustee who’ll transfer the property to your heirs after your death. A living trust is also a good way to protect your property in case you become incapacitated.

Beneficiary designations

Property that is contractual in nature, such as life insurance, annuities and retirement accounts, passes to heirs by beneficiary designation. Typically, all you have to do is fill out a form and sign it. Beneficiaries can be persons or entities, such as a charity or a trust, and you can name multiple beneficiaries to share the proceeds.

When setting up your beneficiary designations, you should:

  • Name primary and contingent beneficiaries.
  • Avoid naming minor children as beneficiaries, though you can, however, name a guardian to receive the proceeds for the benefit of the minor child.
  • Re-evaluate your beneficiary designations when your circumstances change, such as marriage, divorce or death of beneficiary. Remember, you can’t change the beneficiary with your will or a trust, but rather you must complete a new beneficiary designation form. (Note: Some beneficiaries can’t be changed. For example, a divorce decree may stipulate that an ex-spouse will receive the proceeds.)
  • Consider the income and estate tax ramifications for your heirs and your estate when naming a beneficiary. For example, proceeds your beneficiaries receive from life insurance are generally not subject to income tax, while your beneficiaries will have to pay income tax on proceeds received from tax-deferred retirement plans (e.g., traditional IRAs).

Joint ownership arrangements

Two (or more) persons can own property equally, and at the death of one, the other becomes the sole owner. This type of ownership is called joint tenancy with rights of survivorship (JTWRS). A JTWRS arrangement between spouses is known as tenancy by the entirety in certain states, and a handful of states have a form of joint ownership known as community property.

You may find joint ownership arrangements are useful and convenient with some types of property but may not be desirable with all of your property. For example, owning an out-of-state residence jointly (such as a vacation home) can avoid an ancillary probate process in that state. However, it may not be practical to own property jointly where frequent transactions are involved, such as your investment portfolio or business assets, because you may need the joint owner’s approval and signature for each transaction. There are some other disadvantages to joint ownership arrangements, so talk to your financial professional to determine how joint ownership may be useful in your specific circumstances.

Questions? Contact a CFS Financial Advisor.

Grow has contracted with CUSO Financial Services, L.P. (CFS) to provide investment services, and your CFS Financial Advisor will help you build a plan that meets your needs. The advisor will look at your current spending, saving and investing, learn about your goals and priorities, make objective recommendations and support your efforts moving forward through the implementation and management of your plan.

Schedule a Complimentary Consultation

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021.


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