Over the course of the next 20 years, an astounding $84 trillion in wealth is estimated to change hands — $72 trillion transferred to heirs and $12 trillion donated to charities — according to Cerulli Associates. Dubbed “the great wealth transfer,” this projected financial activity has put an emphasis on the importance of estate planning.
In some cases, the process of estate planning can be time-consuming, especially if it involves a large number of assets. But what if you don’t have that long to come up with a plan? What if you’re in your late 60s and in poor health, and you want to ensure that your children are able to inherit your assets without complications?
The good news is that, with the right strategy, you can help facilitate a smooth transfer of assets to your loved ones — and potentially avoid the costly and slow process of probate. Here are some options.
The problem with using a will to pass assets down to your children is that wills are subject to probate, which is the often-complicated process of proving a will’s validity in court.
The amount of time it takes to go through probate depends on the complexity of the estate. But Trust & Will, an online estate-planning service, puts the average time to complete probate at 20 months. That’s a long time for your children to wait for an inheritance.
There’s also the cost to think about. On average, probate costs 3% to 7% of the value of a given estate, according to Trust & Will. If your estate is worth $1 million, that means you’re looking at $30,000 to $70,000 sliced off the top.
It’s for these reasons you may want to consider using a living trust to pass down assets instead of a will. A living trust is another tool that can be used to control how assets are distributed upon your death, while avoiding probate. They can be especially helpful if you have a larger estate or a larger number of beneficiaries.
Of course, you’ll need to weigh the cost and time of setting up a living trust against going through probate. You’ll commonly pay more to establish a trust than to write a will. But the benefit of avoiding probate (both the hassle and the expense) may be worth it.
Plus, you should know that wills that go through probate become a matter of public record. If you use one, any nosy person can look up the details and see what your children are inheriting. A living trust allows your financial matters to remain private.
Speaking with a financial adviser or estate planner can help you decide what may be best for your situation.
You might assume that you need to list all of your assets in a will to ensure that they’re passed down according to your wishes. But that’s not necessarily true.
Many financial institutions allow you to designate a payable-on-death (POD) beneficiary, or multiple beneficiaries. Your POD beneficiary then inherits your account upon your death. You can generally designate a POD beneficiary for savings accounts, CDs, IRAs, 401(k) plans and taxable brokerage accounts.
It’s not a rule that you need to wait until your death for your loved ones to inherit your assets. Giving assets away before you die could help you avoid a world of complications. And as a plus, you might get to see how your children benefit from the assets they receive. For example, if you give one of your children a large sum of money, they might use it to buy a home — and you get to be a part of that.
That said, you may need to be careful about giving assets away due to the gift tax, which is a tax that you, as the giver, would be required to pay. The annual gift tax limit in 2024 is $18,000 for individuals and $36,000 for married couples. These are the maximum amounts you can give per person without having to report it to the IRS. But exceeding these limits doesn’t necessarily mean you have to pay the gift tax. There is a lifetime limit of $13.61 million for individuals — double for married couples. Once you’ve gifted over your lifetime amount, you may be subject to the gift tax.
These limits are set to change next year. In 2025, the annual limits will be $19,000 and $38,000 for individuals and married couples, respectively, while the lifetime limits will go up to $13.99 million and $27.98 million. However, the lifetime limit is scheduled to drop in 2026 to its pre-2018 level of $5 million, adjusted for inflation, per individual.
Finally, if you own a home and want to pass it down, you may want to consider establishing a joint ownership with right to survivorship. This way, if you die, the title on the home should pass to your surviving owners — which can be your children. It might be a good idea to work with a real estate or estate planning lawyer to set up this arrangement, but it could help ensure that your home changes hands smoothly without going through the probate process.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
