Will Your Money Outlive You?

Will your money outlive you?

Before you retire, take the time to figure out just how much money you'll need for retirement.  If you've planned well and in advance, it's possible that you'll have plenty of money to last throughout your retirement years. In fact, you may discover that your retirement savings actually exceed your retirement income needs. But, before you get too excited, you should realize that there are unique challenges that can arise when your money will outlive you. Estate planning is an essential tool for dealing with the money and property you leave when you pass away. Estate planning is a complex process, and you will need to consult additional resources to ensure yours is done properly.

You've got more than enough money for retirement. Why is this a problem?

Having more money than you need for retirement is not a problem, but it does mean you'll have to do some estate planning to make sure everything goes smoothly when you pass away. First, you'll want to make sure all your hard-earned money doesn't end up in the hands of the federal government when you die. You may also want to be sure that your heirs are provided for and that whatever is left at the end of your life is distributed according to your wishes.

Estate and other taxes

Various state and federal estate, death, inheritance, and income taxes can eat up a substantial portion of your estate. And the more you have when you die, the greater the potential tax liability. You worked hard throughout your life to earn that money--do you really want to hand it over to the government when you die? Estate planning can minimize this tax bite and leave more of your estate for your heirs.

Distribution of your estate

If you have money and property left when you die, it will pass to someone. However, it may not be distributed according to your wishes unless you plan ahead. Maybe you have specific ideas about how much you want your heirs to receive. Perhaps you want specific property to go to your children, your grandchildren, or certain charitable organizations. You may even need to provide for the continuing operation of the family business. Estate planning can ensure that your money and property are distributed according to your wishes.

So, what can you do about it?

Spend more money

If you have more money than you could possibly need for retirement, you are in an enviable position. You won't need to worry about saving or minimizing your expenses. Go ahead--take that trip around the world! Buy the retirement home you've always dreamed of! You deserve to reap the rewards of a lifetime of hard work.

Tip:    Before taking on more expenses, remember to reanalyze your situation, including the assumed new expenses. Leave a buffer to insure your peace of mind.

Give it away

You might begin distributing your property during your lifetime. This will allow you to reduce the size of your estate and, at the same time, to experience the joy of giving your heirs things they truly want or need.  You might also consider making gifts to your favorite charities.  Keep in mind, however, that federal gift tax may be imposed if you give more than $14,000 in 2013 ($13,000 in 2012) to any one individual in a given year. However, gift tax owed may be offset by your gift and estate tax applicable exclusion amount (in 2013, $5.25 million plus any deceased spousal unused exclusion amount), if it is available. You may also owe state gift tax.

Consider different forms of property ownership

Most of your property is probably owned by you alone or jointly with your spouse. There are many forms of property ownership, and the form of ownership may dictate how your property is distributed when you die. Proper ownership may simplify the process of distributing your estate at death, so you may want to consult an attorney.

Put property in trust

Trusts are another way to transfer ownership and control of your property. There are many types of trusts that can be used for many purposes. You will generally need an experienced attorney's help to properly set up a trust.

Choose beneficiaries carefully

You can choose a beneficiary for many of your assets, such as life insurance, IRAs, and other retirement plans. The beneficiary typically receives the proceeds directly from these vehicles when you die, subject to special situations (e.g., estate taxes or other estate obligations). Thus, it is important that you choose these beneficiaries carefully.

Make a will

Regardless of how much or how little you own, it is wise to have a will. Your will controls the distribution of any property that is not distributed through other avenues, such as form of ownership or designation of beneficiary. You can change or revoke your will at any time before your death. Anyone can draft a will, but only a qualified attorney should be trusted with this important task.

IMPORTANT DISCLOSURES PRIVATE WEALTH CFOs LLC does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable--we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.