Safeguard Your Heirs in Retirement

Safeguard Your Heirs in Retirement

Parents often ask me how they can take care of their kids after they pass away. Understandably, they want to make as certain as possible now that their plans will be dependably honored. In response, I usually ask, “How much control do you want?” and “How much control do you need for this child?”

There are several ways in which I have worked with clients to ensure that a degree of control factors into their estate planning. The following are things I normally suggest.


Use a Trust 

This enables your money under supervision with a child, should you have concerns about their ability to use a lump sum wisely. There are three people you will need to designate for this approach: a successor trustee, a CPA, and an investment manager. 

Your Successor Trustee 

This is someone you designate who will settle your trust or continue looking after it upon your passing. They are responsible for the location and protection of the trust’s assets, working with the executor of your estate (should probate be required), collecting life insurance policies, verifying the date-of-death value of the trust’s assets, and so on. 

Your CPA

Just like it sounds, this is a certified public accountant (CPA) whom you assign to your trust’s tax preparation. If your estate exceeds $11.7 million, the IRS will tax it at anywhere from 18% to 40%. So, it is in your heirs’ best interests for you to vet and choose someone well-suited for this role.

Your Investment Manager

Just as they do while you are alive, the trust’s investment manager is charged with overseeing your assets. This is particularly helpful if, for instance, one of your heirs is a minor. Until that child is old enough to inherit their full share of the trust, your investment manager can balance your portfolio as needed for optimal returns. 

At Montgomery Taylor Wealth Management, we offer combined Financial Planning, Investment and Accounting services. If your accountant doesn’t interact with your wealth manager, it’s probably costing you more than you think. To maximize your results, your financial planning should always include tax planning. We can bring everything together for you.

Buy an Annuity

An annuity is a contract from an insurance provider or financial firm. Think of it as an insurance product that you invest in. As a result, the insurance provider guarantees regular payments (income) over a set period of time. 

Since annuities can sometimes offer a rate of return better than some certificates of deposit (CDs), you might think of them as something like a CD on steroids.

Immediate vs. Deferred

When those payments begin determines whether your contract is an immediate or deferred annuity. Immediate annuities take one premium deposit, so they are also known as single premium immediate annuities (SPIAs). Designed to provide a steady income to the owner over a specific time span, they pay out according to how much is deposited, your age and life expectancy, and current interest rates.

Deferred annuities generally hold the income for accruing interest or until the contract expires. However, for the kind of situation we are discussing here, the immediate variety is probably a better fit.

Fixed-income’s Advantage

The whole point of a fixed-income annuity is to provide a return on the money you pay in. First, you contribute, either with a lumped sum or by making payments over time. This is what is known as the “accumulation” phase. 

Second, when you are ready to start making withdrawals, the “distribution” phase begins. Some people use this guaranteed monthly income as a D-I-Y pension when they retire. Meanwhile, a parent can establish one for a child to receive payments from. 

The beauty of this method is the fact that you do not need a CPA or successor trustee. It is not very difficult to establish, either. You essentially set it… and then it continues on autopilot from there. 


Name a Contingent Beneficiary 

Businessman hand flipping wooden cube blocks with PLAN A change to PLAN B text on table background. strategy, analysis, marketing, project and Crisis conceptsMany people do not know to name beneficiaries for their retirement accounts and insurance contracts. Even fewer of them have named a contingent beneficiary. In fact, too few know what it involves well enough to understand why this is important. 

Sometimes someone is named as a beneficiary who has recently passed away. Having a named contingent beneficiary prevents your retirement assets from going somewhere you did not intend.

The term “contingent” refers to the status depending on the circumstances. If for some reason your primary beneficiary or beneficiaries, (the person or people you would prefer to receive your estate) cannot or will not accept their share, the contingency engages.

In other words, your contingent beneficiary is your Plan B; whomever you might pick as the runner-up recipient(s). You can name one contingent beneficiary or several simultaneous ones (like a group of siblings). The biggest requirement is that beneficiaries’ combined shares match 100% of the former primary’s share.

Please imagine this example: Albert Assets passes peacefully away in his sleep. Albert’s beneficiary designation had specified his son, Mark, as the primary beneficiary of his retirement accounts. So, if all went according to plan, Mark would be receiving the retirement assets.

However, Mark, unfortunately, passed away a few months prior to Albert. Due to Albert’s extended illness, he did not have the opportunity to update his beneficiary designations.

Thankfully, Albert had the foresight to name a contingent beneficiary several years ago. In fact, he named Mark’s four cousins to be next in line. So, Mark’s missed inheritance will now be divided between them. Each stands to inherit 25% of the assets designated for Mark.


Specify Per Stirpes

The phrase, “per stirpes” is Latin in origin and means, roughly, either “by branch” or “by root.” It refers to another important means of control regarding your future beneficiaries. Essentially, it specifies what happens if your primary beneficiary dies before you do.

This may sound similar to naming a contingent beneficiary, but this is actually something more supplemental: Per stirpes stipulates that if your primary beneficiary is unavailable to inherit their share, that inheritance goes to their next of kin. 

As a result, it is often used in reference to grandchildren. You might see it phrased along the lines of “I leave my pet rock collection to my descendants, per stirpes.” This means if the collection cannot be given to Albert’s son, it goes to the next generation; his grandkids.

Here is a short video with more information about contingent beneficiaries.

Legacy, tax, and financial planning are Montgomery Taylor Wealth Management’s specialties. Call us today to plan a retirement that could benefit your loved ones now and for years to come. We are your personal resource for estate planning in Sonoma County.


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Click here to view a short video to learn more about “Protecting Your Heirs in Retirement”.


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