Where Money Can Go When You Die

Death, taxes, and your cash.

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David B. Armstrong

Given the current environment, a lot of people ask me, “Dave, what do you think is going to happen with the fiscal cliff?”

My response: I have no idea.

Seriously. And neither do you or anyone else writing about the subject. I don't think President Obama knows either. And really, is Washington's decisive moment going to answer every question about your financial future? Most likely not.

Here's what I do know. You are going to die. Someday.

So what does that mean? Plan for it and plan for it now. At its core, it can be a very simple project. Start with the money you have, and decide where you want it to go because the reality is your money can only go to one of four places during your life and after you are gone.

That's right, four places. Here are your options:

1) You can spend it. Shocking I know, but you have heard people jokingly say they want to “die broke.” What they are saying is that they actually want to spend all of their money during their lifetime and have nothing left over to give to the three remaining places that money can go. It's a good strategy and requires some planning because the downside, of course, is that you go broke before you die. Making some assumptions and having a solid financial plan in place can lower the probability of this happening.

2) You give it to family. This is the obvious choice and usually the most popular. It's also misunderstood. While you can choose to give your money to your family either during your life or after you die, it's easier to do it while alive. This is especially true this year. Under current (2012) legislation, a person can give $13,000 per year tax-free to anyone he or she chooses. That means a married couple can gift $26,000 per year to any one person tax-free. Additionally, the current law allows for $5,120,000 per person as a lifetime limit, meaning a couple can gift over $10 million. It's easy to see how quickly a plan can be implemented to get tax-exempt money to family under current legislation.

3) You can give it to charity. Again, like giving money to family, this can be done during or after your lifetime. Remember that while gifting money to a charity can be a big tax savings in addition to making you feel good, it obviously lowers the amount of money that will be left over to go to family. Again, proper planning is essential in order to strike a balance if necessary.

4) You can give it to the government in taxes. We all pay taxes while we are alive, that's obvious. What's not so obvious is that the government can come in and take a huge bite out of your estate after you die. This is where your money goes if you have a lot of it and you fail to spend it all or plan for it to go to family or charity before you die.

Most people choose to spend their money in combination with gifting to family and charity rather than choosing to "gift" it to the government (if that's your favorite option, your best investment may be in a good therapist).

Any way you slice it, and regardless of net worth, having a good plan for where the money goes during and after your life is a good idea and a simple exercise.

Control the things you can control. Having a plan is one of the most important things you can do for yourself and your family.

David B. Armstrong, CFA, is a Managing Director and Co-founder of Monument Wealth Management, a full-service wealth management firm located just outside Washington, DC in Alexandria, Va. Follow David on his blog which can be found on his website, on Twitter @MonumentWealth, and on the Monument Wealth Management Facebook page. Securities and financial planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

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