When it comes to safeguarding your legacy, nothing compares to having a comprehensive estate plan in place. As part of estate planning, you will need to decide who is going to inherit what. Generally, the surviving spouse and children are the first in line to inherit a deceased person’s assets. However, transferring assets to your children may be fraught with potential pitfalls and ramifications to avoid. While giving your assets to your children may seem like an appealing idea, it could lead to unforeseen consequences. For help with the complexities involved in transferring property during your lifetime or after your death, consider reaching out to an estate planning lawyer at Roulet Law Firm, P.A., to discuss the various options for your assets. Call our Minnetonka, Minnesota office at (763) 420-5087 or our southwest Florida office at (941) 909-4644 to schedule a meeting.
How Do You Transfer Assets Between Family Members?
There are several ways to transfer assets to your children or other family members, including:
- Gifting: This method involves giving away your assets while you are still alive to reduce the size of your estate.
- Beneficiary designations: Beneficiary designations mean naming a person to inherit a specific asset after your death. This works with life insurance policies, retirement and investment accounts, and some other assets.
- Joint tenancy with rights of survivorship: Jointly held bank and investment accounts and jointly owned real estate pass to the surviving holder/owner(s) when one holder/owner dies. The asset must be owned through joint tenancy with the right of survivorship for this method to apply.
- Trust: An individual can create a trust and appoint a trustee to hold specific assets on behalf of children or other beneficiaries. The trust arrangement can be customized to specify how the trustor wants his or her assets to be distributed to the beneficiaries.
- Probate: If an asset does not pass to an heir through any of the above-mentioned methods, it will generally pass through the process called “probate.” The Florida State Courts Self-Help website defines probate as a court-supervised process for distributing assets to the deceased’s heirs.
If your children are not old or mature enough, you may be concerned about protecting your family’s wealth. You can achieve this by creating a trust and setting the conditions under which the asset will be distributed to the child instead of giving the child full access to the asset. In a common example, many trusts specify that the beneficiary will get access to funds or assets in the trust after turning 18 or graduating from college.
That being said, we usually suggest that children be at least 25 before being given complete control of assets as they are often more mature. Even better, you may want to consider utilizing a lifetime asset protection trust for them that would allow access to the funds for their health, education, maintenance and support while having the added benefits of protecting their inheritance in the event they get divorced, get sued, suffer a job loss or medical emergency.
Mistakes To Avoid When Transferring Assets to Children
Transferring assets to anyone requires careful consideration, but this is especially true if you are considering giving your assets to your children. Before leaving an inheritance to your children, consider the following four mistakes to avoid making:
- Not taking your children’s wishes into account (or not knowing them in the first place). Have an honest and open conversation with your children so you can understand what they want and do not want. If your goal is to avoid potential conflicts or disappointments later, be sure to take your children’s wishes into consideration.
- Not distributing the inheritance equally. When transferring assets to multiple children, one of the worst mistakes a person can make is giving unequal shares. An experienced estate planning attorney may be able to help you with developing a proper plan to ensure that the children will receive equal shares of the estate.
- Not discussing the responsibilities of future owners. When a child inherits property, he or she becomes its lawful owner. Unfortunately, not everyone may be prepared to take on this responsibility. For this reason, it may be helpful to have a discussion with the future owners of your assets to ensure that they will be prepared to manage their inheritance responsibly.
- Not involving your children in the family business. If one of the assets you are passing down is the family business, make sure that your children understand how the business operates. If you do not involve them in the business early on, there is a good chance that they will not be able to run the company efficiently, which could put your years of hard work at risk.
An experienced estate planning lawyer from Roulet Law Firm, P.A., may be able to help develop a personalized plan tailored to your specific circumstances for a smooth transfer of wealth to the next generation.
Why Do Parents Put Assets in Their Children’s Names?
Parents often put their assets into their children’s names during their lifetime for the following three common reasons:
- Tax advantages: Many parents believe that they can save on taxes by putting assets in their children’s names or giving a certain amount of money to their children each year. However, as long as the estate value is lower than the exemption ($3 million in 2023 in Minnesota, according to the Minnesota Department of Revenue), children can inherit the estate tax-free.
- Lawsuit protection: Another reason parents transfer assets to their children during their lifetime is to enjoy protection from lawsuits. While this may prevent creditors or other interested parties from suing you, your children may still face lawsuits after the assets have been transferred. Further, if you want to protect your assets from long-term care and nursing home costs, transferring assets to your children may actually cause you to not qualify for benefits you may otherwise been entitled to. If you would like to learn more about how to protect your home and life savings from nursing home and long-term care costs, check out our free guide “Save Our Home: How to Protect Your Home and Life Savings from Long-Term Care and Nursing Home Costs”
- Probate avoidance: Probate can be a costly and lengthy process, which is why many people go to great lengths so their families can avoid it. However, putting assets in your child’s name may not be the most effective strategy if your only goal is probate avoidance. Creating a revocable trust may be a more viable alternative because it does not require giving up control over your assets and often has better tax treatment.
What Should Be Included in an Estate Planning Binder?
Creating an estate planning binder is an often-overlooked step when setting up an estate plan. A binder is a detailed list of all the financial and personal assets a person owns and includes all the documents relevant for distributing the person’s estate, including the Last Will and Testament (will), trusts, and others. Everyone has a unique collection of assets and documents as part of their estate plan, so the contents of a binder may vary from one person to another. Some of the most critical components to include in an estate planning binder are:
- Medical records
- Health insurance information, including contact information for the insurance provider
- Advance directive
- Power of attorney
- Last Will and Testament
- Trusts
- Financial information
- Tax records
- List of assets
- Log of accounts and passwords
Contact an Estate Planning Lawyer Today
The primary purpose of an estate planning binder is to ease the burden on family members in the event of a person’s death to ensure that nothing is overlooked or forgotten. Having a binder also helps to ensure a smooth transfer of assets with no unnecessary complications and delays. If you do not want to leave your assets to chance in terms of who gets what, it may be time to start planning your estate. To plan ahead and make informed decisions when transferring assets to children or other family members, consider calling a knowledgeable estate planning attorney at Roulet Law Firm, P.A., at our Florida office at (941) 909-4644 or our Minnetonka, Minnesota office at (763) 420-5087.
If you would like to learn how to protect your home and life savings from long-term care and nursing home costs, click here to download our FREE guide Save our Home: How to Protect Your Home and Life Savings From Long-Term Care and Nursing Home Costs.
And, if you would like to learn how to make it as easy and inexpensive as possible for your family to manage your affairs during incapacity and after passing, while ensuring your assets only go to whom you want and how you want, click here to register for our FREE online masterclass.
