How to pass your Investments onto your children in your Will

How to pass your Investments onto your children in your Will

The issue of passing investments onto children impacts on your savings, the type of retirement plan you choose and also how you make retirement plan distributions. But beyond your intention to leave wealth for your children, there are a multitude of financial issues to consider. Read on to find out how to go about passing wealth to the next generation.

Consider Tax Implications

It should be noted that certain inherited assets (e.g., stocks and mutual funds) are eligible for tax cuts – called Step-up in basis. If eligible, this could mean significant savings for the heirs.

There are two common ways for people to pass on assets to children:

· Creating a will
· Setting up a trust

A Will communicates the way your assets are to be distributed upon your death and also mentions who will be your executor. Bear in mind every estate has limitations on what you’re allowed to bequeath in your will based on the nature of assets and your claim of ownership. Assets that can “pass under” the will include those that are registered in your own name and those that you own with other parties as “tenants in common”.

Tenancy in common

This is a form of property ownership that allows an individual to pass along their separate interest to specific beneficiaries as opposed to the co-owners, as stipulated in the rules of joint tenancy. Two people are presumed to own property as tenants in common unless stated otherwise in legal writing. The process of bequeathing these assets requires that they go thorough legal validation (probate) before being handed over to the stated hair.
Assets that can’t pass under the will

You may not be able to mention all your investments in the Will. Some assets are said to “pass outside” or “pass over” the Will, and as such cannot be conveyed to your children through this process. These types of assets cannot through probate when you die; instead, they automatically pass through the beneficiaries through other legal avenues depending on the nature of the assets. If you include “pass over” assets when writing your will, the court will simply ignore them. Here are some examples:

· Banking and investment products (including savings, checking accounts, brokerage accounts (on platforms such as CMC Markets  and others), CDs, etc.)

· Proceeds from pension plans (this includes IRAs and retirement plans that are payable to the beneficiary)

· Proceeds from life insurance: The stated beneficiaries will receive all policy proceeds when you die; but if the estate is named as the beneficiary, then all proceeds will undergo the probate process and eventually pass on to the beneficiaries.

· Joint tenancy property ownership: This type of asset is transferred to the co-owner upon your death.

· Living Trust assets: Bear in mind that all assets placed within a Living Trust go automatically to the stated beneficiaries but those that go to a Testamentary Trust can be included in the probate process after which your estate beneficiaries will receive them.

· Business partnership: It may be possible to transfer assets from a business partnership through your will; however the specifics of your partnership agreement may hamper this process. These types of contracts present unique challenges for the transfer of wealth, and unless specifically addressed, the amount of assets viable for transfer may be limited.
It may be possible to avoid probate however individuals with more complicated estates may have to undergo some hassle and expense as a result.

Setting up a Trust

It makes sense to set up a trust for the management and distribution of the estate from you to the surviving spouse and children. Individuals who have children from previous relationship may require a trust, particularly if there wasn’t any prenuptial agreement. Trust are can streamline the process to make sure that specific assets are passed on to designated children; keep in mind you can reach this agreement after marriage.

Choosing investments

Individuals with extensive estates may expect their children to pass off the assets to their own children, and this calls for a portfolio that can last multiple generations. This type of portfolio grows, preserves capital and can generate income through laddered bonds, investments and capital equities. In order to keep the portfolio valuable and growing through the years, inheritors should only withdraw income only and avoid tapping into the principal. When setting up this type of inheritance, consider the effect of inflation and years of compounded investment growth.


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