For most investors, managing their money extends well beyond just having enough to enjoy their own life and retirement. It also includes caring for their loved ones.
But what if you are concerned about any (or all) of your heirs mismanaging their inheritance? What if your concern is children and grandchildren whose parents may while away their potential inheritances? Do you have a way to ensure an ongoing structured income instead of one-time lump sums? The answer is yes. Discover a few ways to do it.
A trust is the most common means for turning inheritances into annual or monthly income for heirs. The donor transfers specific assets into the trust, and the donor is usually named as trustee with a successor trustee to manage the assets if they can't. The rules of the trust — such as how and when to disburse assets to individual beneficiaries — are set up by the donor.
Trusts are a great option for many estate planners. However, they do have the most restrictions about using your assets while still alive and have tax consequences if not set up correctly. These, then, should be set up only with the help of financial and legal professionals.
Annuities have evolved to provide a less formal way to structure estate planning income than a trust.
Many annuities now allow the purchaser to choose disbursement options that include heirs. For instance, you might opt for a lifetime monthly benefit that includes the lifetime of a designated joint owner. Other annuities could give monthly payments for a set number of years with the payments going to a beneficiary for the remainder of the term if you die.
3. Death Benefit Rules
Most investors use the beneficiary provisions to stipulate who gets their retirement or bank account funds if they pass away. But more and more investment accounts now allow you some freedom to choose how and when those accounts are paid out. You could, then, use such death benefit schedules to release a percentage of funds per year or a portion of the investment income per year.
4. 529 Plans
Are you concerned that money you want to put aside for your children's or grandchildren's college educations will be spent by other family members? If so, consider how to use college savings plans to protect this dedicated money.
State-sponsored 529 plans, for instance, can be opened and maintained by the donor with the child (or a trust) as the beneficiary. Parents wouldn't have access to the funds, and funds cannot be used for anything other than education-related expenses. If the beneficiary doesn't wind up using all the funds, you or they can pass them on to others for the same purpose.
5. Ladder Systems
Laddering is an investment strategy that uses timed investments to release funds on a set schedule. For instance, you might buy 3-month, 6-month, and 9-month certificates of deposit. These CDs would mature and become available at three-month intervals, creating a ladder of scheduled income.
Estate planning might make use of variations on this strategy. For instance, a life insurance policy could provide an heir with a larger portion of funds after your passing to provide for them for the first few years. Set up an inherited IRA to be disbursed later within the 10-year period mandated by current tax law. Finally, death benefits from investments could create an income at a later point.
Where to Start
Do you want to utilize any of these methods to build a controlled and more stable income for your heirs? No matter what your concerns or your resources, you can set up an estate plan that meets your needs and provides confidence.
Start by consulting with the wealth management pros at Presidio Wealth Management. We will help you assess all your options and choose what will ensure the best outcome for all. Call today to make an appointment.