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Who Should Inherit Your Wealth? A Guide for the Wealthy

Who Should Inherit Your Wealth? A Guide for the Wealthy

July 07, 2023

Who Should Inherit Your Wealth? A Guide for the Wealthy

One important consideration for many people, including those who have amassed significant wealth during their lives, is determining exactly who they should pass along their assets to when the time comes. Most folks want to feel assured that their hard-earned money will go to those who will appreciate it and who also might need it.

Estate planning is frequently filled with many tough decisions, and deciding on one’s heirs can be one of the most challenging parts of the process. In this article, we'll explore how to decide who should inherit one’s wealth and discuss some key considerations.

#1: Family Dynamics

First, it’s usually a good idea for one to consider their family dynamics. When someone has a spouse, they typically become the primary beneficiary. However, what if there are children from a previous marriage or a sibling that the person is particularly fond of?

It’s necessary to balance one’s familial relationships with the legal requirements of their state's inheritance laws. If one doesn’t have a will, for instance, their state will likely distribute their assets according to the default laws, which may not align with their wishes.

#2: Financial Management Skills

Another key factor to consider is the potential heirs' level of responsibility and financial management skills. While one may want to provide for a family member who doesn't handle their finances as well as others, this can sometimes lead to future disagreements over money.

Alternatively, one could consider setting up a trust that dispenses funds gradually over time or specifically for certain purposes (such as education or health expenses) to help ensure the money is used wisely.

#3: Charitable Wishes

If someone doesn’t have any obvious heirs or prefers to leave their wealth to a charitable organization, there are a few important things to consider. For example, one can designate a charity as a beneficiary in their will or establish a trust, foundation, or donor-advised fund (DAF) to give assets to multiple charities. A trust or foundation can also potentially give one greater control over how their money is distributed after they are gone.

#4: Tax Implications

Lastly, it’s critical that one considers the tax implications of their estate. For instance, some gifts to heirs may be subject to federal estate and gift taxes. In some cases, there may be exemptions that allow one to pass along wealth tax-free up to a certain amount with any amount exceeding that subject to being taxed. Consulting with a qualified financial planner and/or tax professional can help ensure that one’s beneficiaries receive the most tax-advantaged inheritance possible.

Deciding who should inherit one’s lifetime wealth is a crucial decision. There are many factors to consider from legal requirements to family dynamics to tax implications. The best approach usually depends on one’s unique situation, so it's generally wise for one to seek professional guidance so they can make an informed choice. With careful planning, one can help ensure their assets go toward the causes and people they care about most, leaving a lasting legacy that reflects their personal values and beliefs.

Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.