Choosing beneficiaries to receive your assets may seem like a straightforward decision. But it can get complicated. The following are considerations you should keep in mind when choosing beneficiaries.
- Individuals under the age of 18 cannot receive assets directly, so it is not recommended that you name underage children as beneficiaries.
- If you name them directly, the heirs will need to have a guardian appointed in court to receive the assets, and it is costly to go through this process.
- If you have children whom you want to inherit your assets, have an attorney write a will that creates a trust for their benefit and name a trustee who will be responsible for the children’s funds until an age you choose. The beneficiary of your assets will then be the trustee of the children’s trust under your will.
- After the children turn 18, they can be named directly. However, most children are not responsible with money until their late 20s or early 30s. It is still wise at that point to create a trust in your will and you can appoint a trustee to take care of their money until they are mature enough to do so.
- Be careful leaving assets to people who may be on social assistance such as Medicaid. Inheriting assets directly may disqualify them for services. This includes disabled adults or elderly needing nursing home care. If you want to leave assets for these individuals, work with an attorney to create a special needs trust. The beneficiary of your assets can be the special needs trust which can be used for their benefit but not disqualify them for services.
- If you plan to leave money to charity, it is good to do this as a beneficiary designation on retirement plans. Income taxes on retirement plans are paid by beneficiaries when the money is withdrawn. Charities are not required to pay income tax, so this is a great asset for charities to inherit. Leave assets such as Roth accounts and regular brokerage accounts to your beneficiary, as these will pass to them without tax consequences.