When most investors think about providing for and protecting their future heirs, they think in the context of estate planning. But even your investment management now will serve to help your heirs or cause unexpected problems. Here are a few investment steps you can take with them in mind.
1. Check Beneficiaries Regularly
Most financial accounts — including retirement, bank, and brokerage accounts — offer beneficiary designations. Are you using these? This is an easy and free planning tool that allows you to pass on liquid funds simply, quickly, and privately. But you also need to check your designations on a regular basis to ensure they accurately reflect your wishes as of right now.
2. Don't Put Off All Taxes
Tax planning is an important part of wealth building. But that doesn't just mean delaying as much taxation as possible. This can put an unexpected burden on future heirs. If you leave heirs a traditional IRA or 401(k), for instance, they may have to withdraw that money and pay a huge tax bill right away. Turning it gradually into a Roth IRA, though, would avoid the biggest tax bite by spreading out taxation.
3. Use Annuity and Benefits Options
Modern investment choices are increasingly providing options for heirs. You can buy annuities that continue to pay an heir after your death either for both of your lifetimes or for a set period. And many accounts offer ways to structure how and when the funds are disbursed to beneficiaries after your passing. But you'll need to choose these accounts when deciding how to invest now.
4. Talk With Family Members
Are you open with heirs and other family members about your future plans? While you don't need to be specific about dollar amounts, the more your family understands what to expect, the less conflict there will be after you're gone. Consider including your executor and contingent executor in some meetings with financial advisors so they know what's going on and have a relationship with the advisor.
5. Use Professional Advice
Trying to "go it alone" when it comes to managing your investments now boosts the chances that something will go wrong. An investor with too much risk may leave little money for heirs. Using the wrong types of annuities, life insurance, or trusts can negate their benefits. Failure to keep up with trends may mean much lower returns. And too many expenses drain your accounts. Avoid or minimize these problems by seeking professional advisors.
Where to Start
No matter whether you're just starting to think about estate planning or have a plan in place, how you managing your money now will play a big role. Learn more ways to improve everyone's return by meeting with a private investment management professional today.