It is often said friends are the family you choose, but estate planning and succession laws don’t extend friends nearly so much credit. While the laws of succession vary by state, there are generally no special legal considerations for friends, or even extended family, for that sake – particularly when a person dies intestate, or without a valid Last Will and Testament.
The vast majority of estate planning advice focuses on maximizing benefits for immediate family, such as spouses and children, but there are options for including friends and extended family in your estate plan.
With careful estate planning you can leave a lasting legacy for those beyond your legally recognized immediate family.
Annual Gift Exclusions
In every calendar year, an individual may give up to $14,000 ($28,000 for married couples) to a person without any tax penalty against the maximum lifetime gift exemption of $5.49 million. The annual gift exclusion has no restrictions on the number or identity of the recipients. You can even use annual gifts to fund trusts such as a 529 Savings Plan for future education expenses. Keep in mind, you may pay for an individual’s education or medical expenses directly to the institution without incurring any gift tax.
TOD and Beneficiary Designations
If you are the sole owner of an asset or security, you may transfer that asset upon your death to a beneficiary, or multiple beneficiaries, outside of probate by using a transfer on death, or “TOD,” designation. This transfer of assets is similar to beneficiary designations on IRAs, retirement accounts and life insurance policies. These accounts pass to the beneficiary listed on the account, thereby avoiding probate, but are still considered part of your taxable estate.
Since a will or trust does not control these assets, it is important you review beneficiary designations on these accounts regularly to ensure they go to the person(s) you wish, especially if the beneficiary on the account is not within your immediate legally recognized family.
Trusts are powerful estate planning tools, particularly for passing assets to minors. Creating a trust gives you, the grantor, more control over the assets within in the trust and the distribution process to the beneficiary(ies) named in the trust. If the beneficiary is a minor, you can designate when (or if) you want the minor to eventually receive full control over the assets. You can designate a trustee to manage the trust until that time. Trusts are also valuable estate planning tools for adults as a they exist outside of your taxable estate, thereby minimizing estate tax liability.
No matter who you want to include in your estate plan, Fifth Third Bank can help you throughout the entire estate planning process. Contact a Fifth Third Bank advisor today to get started.