You do not want the government to take a large chunk of the money and other assets that you want to leave to your heirs as their legacy, so you will want to minimize the amount of taxes your estate has to pay. One of the best ways to reduce or avoid estate taxes is by savvy use of beneficiary designation and the titling of your assets.
This blog will help you secure your legacy by offering best practices for title assets and designating beneficiaries. You will want to work with a Florida estate planning attorney on the specific strategy that will meet your needs and help you achieve your goals.
Life Insurance Beneficiary Designation – Why It Matters
When you buy a life insurance policy, the form will ask you to designate the beneficiary or beneficiaries. If you leave the beneficiary designation line blank, the life insurance company will pay the policy proceeds to your estate. The money will get counted toward the total value of your estate, which could push your estate into the realm of having to pay estate tax.
There is an easy way to get the life insurance policy proceeds sent directly to your heirs and avoid getting taxed as a part of your estate. Simply write the name of the person or persons you want to be the beneficiaries of the policy. If you already have a policy that does not have a beneficiary designated, you can contact your life insurance company for the form you can use to name someone to receive the proceeds.
Retirement Account Beneficiaries
Retirement accounts work in a similar manner as life insurance when it comes to designating beneficiaries and avoiding having the asset go into your estate, possibly triggering the assessment of estate tax. If you are married or divorced, you will want to make sure that your beneficiary designation complies with Florida law regarding marital assets.
Transfer on Death (TOD) or Pay on Death (POD) Titling of Accounts
Checking, savings, and investment accounts through banks and brokerage firms can circumvent the estate tax problem, but you will need to change the title of the account, rather than designate a beneficiary. Some people make their accounts joint with the person they want to inherit the money, but there is another way to keep these assets out of your estate.
You can change the title of the accounts to [Your Name] TOD or POD [the beneficiary’s name]. TOD means transfer on death, and POD means pay on death. When titled this way, your beneficiary will receive the account immediately when you pass on. The advantages of this type of titling are that you are the 100 percent owner of the account during your lifetime, and you can change beneficiaries at any time.
Titling Real Estate
Some people enter into an arrangement where they give away their real estate during their lifetime but retain a life estate for as long as they live. With a life estate arrangement, you can continue to live on the property, but you no longer own the house or land. You cannot sell it, which can be a problem if you need the money for medical bills or other reasons.
Titling Your Assets into an Irrevocable Living Trust
You could set up an irrevocable living trust to avoid your estate having to pay taxes, but consider carefully before doing so. “Irrevocable” means that you can never make changes. If you have a falling out with a beneficiary, you cannot remove them as a beneficiary. You no longer own the assets you title into the trust, even if you later need the money.
We understand that beneficiary designations and titling options can be complicated. You will want to work with a Florida estate planning attorney to set up an estate plan that protects your legacy from taxes and complies with the law. Reach out to our office for help with your case.