My wife and I, both in our late 60’s, have built a retirement nest egg, not huge, but comfortable. I am confident that, barring a health-care catastrophe, our funds will not run out before we do.

My question relates to how we pass on what is left of our nest egg at our passing. The “nest egg” is composed currently of an assortment of IRAs, (Roth and Traditional), 403b’s(my wife and I both worked in the non-profit sector) and non-retirement account; all in widely diversified mutual funds. While I intend to streamline this collection into fewer accounts, I intend to keep it diversified in various mutual funds.

What is the least complicated and fairest (to our beneficiaries) way to write a will to disburse this collection of financial assets? A simple percentage division of the total at the time of probate doesn’t seem feasible, given the diversified collection of mutual funds. Diversification for us means a collection of aggressive and conservative stock funds, bond funds, money market funds, etc. Is it best just to split each fund proportionally among beneficiaries (some of whom may be charities, as well as our two children), possibly a burdensome process? Or should we create a trust that could systematically liquidate these assets over a longer time, a process which has its own complications? Or are there other options? I want to minimize the time and complications of administering our estate.

Terry Says:  Well first you have to separate your “qualified assets” — those in retirement accounts — from your after tax or “non-qualified” accounts.

You seem to understand that IRA and 403 (b) accounts must have a designated beneficiary, or several of them — and that those assets will pass directly to the beneficiaries outside a will.   That is, a will has no bearing on the distribution of those assets.  Here’s a suggestion:  roll them all (the retirement accounts)  into one IRA rollover account at Fidelity or Vanguard or T. Rowe Price for each of you.   That is, you would each have your own IRA rollover, naming your spouse as primary beneficiary.   Then name your family members as beneficiaries — after your spouse.   Whatever is in the account at the time of the passing of the surviving spouse will be evenly divided among  your children (whom I assume are your beneficiaries).

THEN BE SURE TO EXPLAIN TO THEM that they should roll this inherited IRA into their own individual IRAs when the distribution is made — so they can stretch out the tax-deferred growth of the account!

If you want to remember charities after your death, that should probably be done through your will or revocable living trust, which will cover all your assets outside your retirement accounts.  I suggest you see a competent estate planning attorney.  You will probably want to create a revocable living trust to simplify the distribution of your non-retirement assets — especially in case one of you becomes incapacitated.  You’ll need to re-name those assets in the name of the trust — but there are no tax consequences to doing so.  Your lawyer will explain.  Any other assets such as family heirlooms can be distributed to your children via the revocable living trust.

But during this process, please keep in mind that you likely have a long life ahead of you — at least 20 years by the IRS’ actuarial tables.  With a bit of good luck, you will use up most of this money — and have a chance to enjoy seeing your children (and grandchildren) create their own financial security — not from an inheritance.  After all, — and I’m taking a wild guess here– but I’m betting that no one gave you an inheritance to start your life!

And one more small suggestion if you have “extra money” and  grandchildren, you might want to open a 529 college savings account now — one for each family.  Money in that account is out of your estate for estate planning purposes —  and grows tax-free for any child in that family to use for college.  Go to www.Saving for to learn more.

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