The Best Ways to Pass on Your Inheritance to Your Family

Passing on your inheritance could be a really complex thing to do since it has to be done in the right way to make sure that the wishes of the deceased are fully met, while also protecting the interests of the beneficiaries. Planning how to pass on your inheritance is important to ensuring financial security to your heirs and creating a long lasting legacy.

A will is a standard method and most widely used method of transferring assets. But there are also other methods to do this such as gifting, joint ownership, trusts and more. Since passing on your inheritance is a delicate process, you should consider consulting a professional financial advisor to make sure that your beneficiaries would get your inheritance as per your wishes. Here are the best ways to pass on your inheritance to your family.

Make A Will

A will is a legal document that documents how a person's wealth and assets will be distributed after their death. A will should be as detailed as possible, including things such as the beneficiary, the exact amount or portion they will receive, and any other important conditions that have to be met like who will carry out the instructions and who will manage any property or estate.

In terms of inheritance law, there are three types that are primarily applied. The first one is common law, where marital assets are not automatically split equally when one of the spouses dies. Common law also states that property ownership is determined by the funds or source used to acquire it, or by the titleholder.

The second law is community property where each spouse automatically owns half of the wealth that was earned during marriage. And when one of them dies, half of the estate owned by the deceased will automatically go to the surviving spouse. However, one can choose to leave more than half of their assets provided they included it in a will.

Under community property law, any income earned and any property acquired during marriage is considered shared in terms of inheritance. But, this law excludes any property, income, assets, gifts, or inheritance acquired before marriage or legal separation.

The third law is the elective community property. If a state is using this law, it will have a system of elective community property that will enable spouses to automatically inherit by making a community property trust and a written agreement with their spouse. In states where this law is applied, both non-residents and residents could establish community property with a trust.

Set Up a Trust

Other than will, trust is also a widely popular way to pass on inheritance. This is because a trust will offer better control over the distribution of wealth to the beneficiaries. When you establish a trust, you can specify exactly how and when your wealth will be distributed to all of your beneficiaries. A trust is one of the best ways to pass on your inheritance to your family since it would be particularly beneficial if you have concerns about the management skills of one or some of your beneficiaries, and is a great way to protect your wealth from creditors.

For inheritance planning, there are several types of trust that you can choose based on your needs. The first one is the revocable living trusts where the grantor will be allowed to retain control over the assets during their lifetime. The grantor is also allowed to change or revoke the assets or the trusts whenever they want. In the event of the grantor's death, the assets will be distributed to the name of beneficiaries in the trust.

There's also irrevocable trusts when once created, the grantor could not change or revoke them. The assets will be transferred out of the estate of the grantor which could reduce the estate taxes. There are several types of these trusts such as special needs trust, charitable trusts, and the ILITs or irrevocable life insurance trusts.

The third type of trusts is testamentary trusts. These trusts will be created through a person's will, and will immediately go into effect once the person dies. The trust will be managed by a trustee and the assets will be distributed to the trust, and then the trustee will manage these assets for the benefits of the beneficiaries.

Joint Owner

If you own a property that you would want to give to a specific person after you die, the easy way to do this is to add them as joint owners of the property. If you do this, if you die, the joint owner would automatically inherit the property.

But before you do this, you should consider the tax and legal complications that could follow. If you don't want them to have any control of the property while you're still alive, making them a joint owner is not the best option since they will have a certain amount of control of the property. Before making this decision, it is advised for you to consult a financial advisor or an attorney.

Life Insurance

Getting life insurance is another way to pass on your inheritance to your family members. In life insurance, there are two types that are mainly used: permanent and term. Permanent life insurance will provide coverage as along as you are alive, and term life insurance will cover you for a specified period of time. The major disadvantage of the term life insurance is that your beneficiary wouldn't get any payout if you outlive the designed period of time.

If you get life insurance, you will designate someone or several people to be your beneficiary or beneficiaries who will receive the benefits after your death. Death benefit is usually tax free but it could attract taxes in some states.

Those are the best ways to pass on your inheritance to your family. Before making any decision, you should consult a lawyer or a financial advisor.