After you outline to whom your assets will pass at your death, comes the “fun” part for an estate planning attorney. It is then the options can be explored as to the “how” those assets will flow to the beneficiaries – and the options are numerous. It is a delicate balance of control and flexibility. Careful thought should be given to this important aspect of a plan to ensure the values most important to you are honored and your wishes for this gift implemented after you pass.
In its most simple form, the distribution of an asset passes to a beneficiary outright and free of trust. In other words, after all expenses of administration, debts of the decedent and tax liabilities are paid, the ownership of the asset is transferred to the beneficiary.
Some examples include:
- A check written payable to the beneficiary in his or her individual name – payable to John Smith.
- A marketable security – a stock or bond – is added to an account in an individual’s name—the brokerage account of John Smith.
- A physical item, such as tangible personal property including one’s belongings, is handed to the beneficiary.
- A car title is transferred into the name of the beneficiary.
The assets can now be used by the beneficiary in any way chosen – to invest for the future, sell to purchase a long-awaited need or want, utilize for his or her support, to make a gift or pay off a debt or for any other purpose.
While a simple option to transfer assets, this distribution brings with it potential challenges. As the assets now belong to the beneficiary, this makes them available to a creditor for repayment of a debt or expense. While your beneficiary may not have creditors today, the future is unknown and a distribution option which provides your beneficiary with creditor protection will later be explored. Due to the lack of control over the assets once transferred, the beneficiary may use them for unwanted purposes, such as extravagant purchases.
Finally, the assets are now part of the beneficiary’s estate which may subject them to future estate tax at the death of the beneficiary.
This simple, outright distribution is one of many options we will continue to explore over the next few articles.
