Investing, Estate Planning and Your Heirs

Who are you investing for? It sounds like an easy question, but the answer becomes more complicated when you factor in estate planning. If you expect to have more than enough money to fund your retirement, then you should be investing that surplus portion of your portfolio differently than you are the rest of your nest egg.

Many individuals and couples who've accumulated large estates won't spend it all before they die, despite my entreaties. After all, most people who've built up sizable savings have done so the old-fashioned way, by living modestly. These same people are unlikely to become big spenders suddenly in their later years.

You need to consider how your estate should be passed on after your death. A will is an essential starting point. Rare is the family where all children and other heirs are in fine financial form, and this may influence how an inheritance is received. For example, giving a spendthrift child an inheritance outright may do more harm than good. Trusts can also come in handy as you plan your bequests.

Yet while estate planning tends to emphasize matters that arise after death, you should also consider whether the way your money is invested while you're alive takes into account the age of those who are most likely to receive it later on. All too often, retirees invest money that's likely to be passed on to younger family members — children, grandchildren, nieces, nephews and so on — the same way they invest money that they're going to need for retirement. So the money might be invested in Treasury bonds and other income-producing securities.

But shouldn't you be investing this money more like a 45-year-old (your child, for example) or a 20-year-old (your grandchild)? The answer is yes. In effect, you should invest more aggressively that portion of your wealth that's likely to be passed on to heirs, emphasizing growth investments rather than income-producing securities. 

Should you consider opening a separate account? >>