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How can my financial plan ensure equal treatment for my beneficiaries?

by Joseph Arroyo | Contributor
Apr 19, 2020


Achieving equality of inheritance for your heirs takes a sound plan. It’s important to integrate your estate planning goals with your retirement savings and investment plans. You can use a combination of financial assets and legal documents to achieve your goal for equality between heirs.

If you have more than one child, you may be concerned about making sure your estate passes to them equally. This is especially important if you also plan to leave some part of your estate to a charitable cause, or if you own illiquid assets.

In this article, we'll assume that you intend to split your estate equally between more than one child or family member. To get started, we'll review what happens to your assets when you die.

What happens to your assets when you die?

If you are married when you pass away, any assets held jointly with your spouse remain with your spouse. Any assets that are owned solely in your name become a part of your estate. If you have a valid will, these assets will be distributed according to the terms of your will.

If you don't have a will, any assets owned solely by you will pass on to your descendants in accordance with the intestacy laws in your state. Your surviving spouse may have no ability to direct the passing of these assets, even if you had discussed a specific inheritance plan.

What legal documents can be used to ensure equality?

The most basic legal document used in estate planning is a last will and testament, which spells out what you want to happen to assets you own after your death.

Any assets that are owned jointly with your spouse are not affected by your will; they remain with your spouse. What a will can be used for is passing individually owned assets to heirs of your choosing. Individually owned property could be investments or real property you owned prior to your marriage, or assets you inherit from others.

A particularly useful function of a will is passing illiquid assets. Illiquid assets can include:

  • Real estate, such as land, farms or duplexes
  • Collections like art, cars, jewelry or stamps
  • Privately held investments

If you want to pass these on to a specific heir, you're will can indicate that. In that way, there's no confusion about your intentions.

Another legal document that can be useful in attaining equality of inheritance is a trust. You can use a trust to stipulate where certain assets are to be distributed upon your death. There are several forms of trusts, including revocable, irrevocable and charitable trusts.

The differences between the types of trust have to do with the control that the trustor (the person or people who put assets into the trust) have over the assets while they're still living. In some trusts, like revocable trusts, the trustor retains control over the assets.

A trust differs from a will in several important ways:

  • A will is effective only upon your death; a trust is in effect from the moment it is created.
  • The assets that a trust can accommodate are different from those that a will has control over. Generally, trusts can handle a wider range of assets.
  • Wills require probate, which is a matter of public record. The execution of trust distributions or transfers remains private.

It is a good idea to have both a will and a trust in place to ensure your estate plan is executed exactly as you intend.

Using financial accounts for equality

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Besides wills, trusts and other legal documents, you can manage your financial accounts to ensure equality of inheritance.

Qualified accounts have special rules designed to make inheritance simple and direct. Qualified accounts can include:

  • 401k plans
  • Annuities
  • IRAs

These accounts allow for beneficiary designation. When you have designated a beneficiary, these assets will pass directly to your beneficiary. These accounts will not pass through probate. Because they pass directly to the beneficiary, their distribution is not governed by the terms of a will, so be sure you update your beneficiary designations.

Many qualified accounts have protections in place for spouses, so you may need to get a waiver from yours if you intend to pass qualified assets on to a non-spouse heir. You can name multiple beneficiaries for each account if you desire. You can also name contingent beneficiaries to cover situations where a younger family member dies early.

Life insurance

Life insurance is especially useful for estate planning and inheritance splitting purposes. On a very simple level, you can name one or more beneficiaries for your life insurance policy. When you die, the proceeds are paid directly to your beneficiaries as you specified.

Life insurance proceeds do not pass through probate. They are also generally not taxable, or subject to estate taxes, so they shouldn't complicate your heirs lives from a tax perspective.

Life insurance can be held in a trust, though, unlike other qualified accounts like retirement plans. Life insurance held in a trust can be used as a part of charitable giving strategy, or as a way to set up younger beneficiaries with a sizable inheritance.

Using both legal documents and financial accounts

Using both methods of estate planning can be especially useful when you want to pass a particular asset to a specific heir. For instance, you might want to pass your art collection on to your daughter because it has particular sentimental value to her. You don't want the art to have to be sold in order to split your inheritance up equally.

Instead, you can use beneficiary designations on qualified accounts to leave your other children a cash inheritance. The same goes for any other illiquid asset: Pair it with a financial account, or life insurance, to ensure that each of your heirs gets an equal share. This also allows sentimental items to go to the heir who will most value them.

Planning is paramount

With all aspects of life, planning is key. You need to have conversations with your spouse, heirs and estate planning advisors to make sure your wishes are implemented. The very investments you choose to fund your retirement can have an impact on your estate, so be sure to include your investment advisor in these discussions as well.

Alliance America can help

Alliance America is an insurance and financial services company. Our financial planners and retirement income certified professionals can assist you in maximizing your retirement resources and help you to achieve your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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