David Lerner Associates: Leaving a Legacy

David Lerner Associates: Leaving a Legacy

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While property that goes by will is subject to probate, real estate that passes by a trust, beneficiary designation, or joint ownership arrangement bypasses probate. 

You've worked hard over the years to build up wealth, and you probably find it comforting to know that after your death the assets you leave behind will continue to be a source of support for your family members, friends, and the causes that are essential to you. But to ensure that your legacy reaches your heirs as you intend, you must make the proper plans now. There are four basic ways to leave a legacy: (1) by will, (2) by trust, (3) by beneficiary designation, and (4) by joint ownership arrangements.


A will is the cornerstone of any estate strategy. You should have a will no matter how much your estate is worth, and even if you've implemented other estate planning strategies.

You can leave property by will in two ways: making specific bequests and making general bequests. A particular bequest directs a particular piece of real estate to a particular person ("I leave Aunt Martha's diamond broach to my niece, Jen"). A general bequest is typically a percentage of property or property that is left over after all specific bequests have been made. Typically, principal heirs receive general bequests ("I leave all the rest of my property to my wife, Jane").

With a will, you can generally leave any kind of property to whomever you wish, with some allowances, including:

  • Property will pass according to a beneficiary designation even if you name a various beneficiary for the same property in your will.
  • Property owned jointly with rights of survivorship passes straight to the joint owner.
  • Real estate in a trust passes according to the terms of the trust.
  • Your surviving spouse has a right to a statutory share (e.g., 50 %) of your property, despite what you leave them in your will.
  • Children may have inheritance rights in certain states.

Caution: Leaving property outright to minor children is troublesome. You should name a custodian or property guardian, or use a trust.


You can also leave property to your heirs using a trust. Trust property passes directly to the trust beneficiaries according to the trust conditions. There are two basic types of trusts: (1) living or revocable, and (2) irrevocable.

Living trusts are very versatile because you can change the terms of the trust (e.g., rename beneficiaries) and the property in the trust at any moment. You can even change your mind by taking your real estate back and ending the trust.

An irrevocable trust, on the other hand, can't be changed or finished except by its terms, but could be useful if you want to minimize estate taxes or protect your property from potential creditors.

You create a trust by executing a document called a trust agreement (you should have an attorney draft any type of trust to be sure it accomplishes what you want).

A trust can't distribute property it does not own, so you must also transfer ownership of your property to the name of the trust. Property without ownership documentation (e.g., jewelry, tools, furniture) are transferred to a trust by listing the items on a trust schedule. Property with ownership documents must be re-titled or re-registered.

You must also name a trustee to administer the trust and manage the trust property. With a living trust, you can name yourself trustee, but you'll need to name a successor trustee who'll transfer the property to your heirs after your death.

Tip: A living trust is also a good way to protect your property in case you become incapacitated.

Beneficiary designations

Property that is contractual in nature, including life insurance, annuities, and retirement accounts, passes to heirs by beneficiary designation. Typically, all you have to do is complete a form and sign it. Beneficiaries can be persons or entities, such as a charity or a trust, and you can name numerous beneficiaries to share the earnings. You should name main and contingent beneficiaries.

Caution: You should not name minor children as beneficiaries. You can, however, name a guardian to receive the proceeds for the benefit of the minor child.

You should consider the income and estate tax ramifications for your heirs and your estate when naming a beneficiary. For example, proceeds your beneficiaries receive from life insurance are generally exempt to income tax, while your beneficiaries will have to pay income tax on proceeds received from tax-deferred retirement plans (e.g., traditional IRAs). Check with your financial planning professional to identify whether your beneficiary designations will have the desired results.

Be sure to re-evaluate your beneficiary designations when your circumstances change (e.g., marriage, divorce, death of beneficiary). You can't alter the beneficiary with your will or a trust. You must complete and sign a new beneficiary designation document.

Caution: Some beneficiaries can't be altered. For example, a divorce decree may stipulate that an ex-spouse will receive the proceeds.

Suggestion: Certain bank accounts and investments also allow you to name someone to receive the asset at your passing.

Joint ownership arrangements

Two (or more) individuals can own property equally, and at the death of one, the other becomes the sole owner. This type of ownership is called joint tenancy with rights of survivorship (JTWRS). A JTWRS arrangement between spouses is known as tenancy by the entirety in certain states, and a handful of states have a form of joint ownership known as community property.

Warning: There is another type of joint ownership called tenancy in common where there is no right of survivorship. Property held as tenancy in common will not pass to a joint owner automatically, although you can leave your interest in the property to your heirs in your will.

You may find joint ownership arrangements are useful and convenient with some types of property, but may not be desirable with all of your property. For example, having a joint checking account ensures that, upon your death, an heir will have instant access to needed cash. And owning an out-of state residence jointly (e.g., a vacation home) can avoid an ancillary probate process in that state. But it may not be practical to own property jointly where constant transactions are involved (e.g., your investment portfolio or business assets) because you may need the joint owner's approval and signature for every transaction.

There are other drawbacks to joint ownership plans, consisting of: (1) your co-owner has immediate access to your property, (2) naming someone who is not your spouse as co-owner may trigger gift tax consequences, and (3) if the co-owner has debt problems, creditors may go after the co-owner's share.

Caution: Unlike with most other types of property, a co-owner of your checking or savings account can withdraw the entire balance without your knowledge or consent.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC



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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 1-800-367-3000 Visit our website: http://www.davidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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