By Sarah J. Corney
Published in the Buzz Book, Spring 2023
If you are exploring options for passing on an inheritance to your loved one, here are the terms and options to know:
Beneficiary Designations. Life insurance policies and retirement accounts allow for “beneficiary designations”. A beneficiary designation is a contract between you and the financial institution that, when you die, the person you designate will become to the owner of the proceeds or account. In most instances, a beneficiary of a life insurance policy will receive the money tax free, whereas the beneficiary of a retirement account will inherit the tax burdens and benefits of the retirement account. Review these regularly to account for births, deaths, marriages, and divorces.
Payable on Death and Transfer on Death. Most savings, checking, money market, and investment accounts can be retitled as “[YOUR NAME], PAYABLE ON DEATH TO [BENEFICIARY’S NAME].” In most states, individual investments in small businesses, mortgages, and stocks can also be titled with payable on death beneficiaries. In Ohio, your real estate can be made payable on death. In each instance, contact your financial advisor, banker, or attorney to ensure that a payable on death beneficiary is appropriate.
Survivorship. Sometimes, you can own assets “jointly with rights of survivorship.” This often applies to real estate bought jointly with a spouse and to bank accounts that you share with a spouse or other loved one. In these instances, it is often as simple as the survivor proving that you have passed to effectuate the transfer into their name alone.
Revocable Trusts. A trust, like a business, is a way of segregating certain assets and setting rules as to ownership during your life and after your death. A revocable trust can be amended and changed throughout the creators’ lifetime. By putting your assets into a trust, you avoid probate.
Irrevocable Trusts. An irrevocable trust (generally) cannot be changed once its terms are put in writing. You may use an irrevocable trust for tax, Medicaid, or special needs planning. Most revocable living trusts become irrevocable (unchangeable) upon the creator’s death.
Lifetime Gifts. During your lifetime, you may choose to give away your assets. However, keep in mind Medicaid and tax rules. For those who may need government assistance to help pay for nursing home costs, there is a 5 year lookback period where you and your family may be penalized for giving away assets. For those with significant assets, there may be gift and estate tax issues to consider. You may also be surrendering a stepped up basis at death (capital gain avoidance) by giving away assets during life.
For more information on wealth preservation and estate planning, contact Sarah at 419-249-7900, or firstname.lastname@example.org.