So, you've been diligent about updating all of your beneficiaries. You have made sure to re-register your accounts with a POD (payable on death) or TOD (transfer on death). Doing all of this to avoid the dreaded "PROBATE". The legal process that transfers ownership from one person to another, after death.
But have you given any thought as to whether or not your beneficiaries will be as diligent and careful with their inheritance as you have been? Do you have grown children that have financially struggled and haven't had the discipline, opportunity, or experience to save and invest for themselves? Are your beneficiaries competent enough to manage these assets or could they potentially be exploited by friends, or even other family members? Do you feel confident that if they are suddenly given this gift that you have so carefully managed to pass on, they will do the right thing? Or could they become a statistic and blow through all of your life savings frivolously, like someone that just won the lottery?
Well, one way that may help protect them is with the use of a "structured payout". In my experience, there are annuity companies that will allow you to list beneficiaries, but with some strings attached. In other words, you could name a beneficiary, but have their share be paid out over a period of years, instead of as a lump sum.
Not only could that help to reduce the potential tax impact, but it could help them manage their inheritance over time, by receiving a monthly check. For a period of 10 or 20 years or more. And if you have multiple beneficiaries, all in different financial circumstances, you have the ability to independently elect how each would receive their portion. Normally to have this level of control of the disposition of your estate, you would have to set up a revocable living trust and pay the costly legal fees that go along with it. A "structured payout" doesn't cost a dime. It's simply a beneficiary designation, kept on file with the company and could be revoked at any time, by you, if you were to change your mind. I've heard of this arrangement also called "the Poor Man's Trust" since there is no costly legal fees to name a beneficiary with a structured payout. This designation may not replace the need for a trust, but if the goal is to simply stretch out those payments to your heirs, this could be the easiest and most cost-effective way to accomplish it. If you think this may work well in your estate planning, give us a call and we can talk about the benefits and the limitations of a structured payout.