Leaving money to someone

[bjl584]

I am looking for some info on setting up a seperate account and putting it in someone elses name so that it will be left to them if something should happen to me (death ) Anyway, it is just a friend, my best friend actually, which I am forever indebted to for a lot of personal reasons that I would rather not get into. Anyway, lets just say that I feel that the only way that I can repay her is to set up a retirement account of sorts for her so that she will be taken care of later in life. I'm looking for advice on how one would go about this. Living trust? Will? A simple joint account arrangement? I'm basically looking to set up a seperate account with some mutual funds, money market accounts etc. Basically an IRA I guess. Any opinions or advice are welcome Thanks all.

[LuxLiving]

I was going to say you can get a POD (payable on death) type of designation on SOME traditional bank accounts, but I'm seeing that you are wanting to go whole hog - I would think you would really want to do your research then as with some of the accounts you are mentioning if you put it directly into her name it would appear to be a gift and would have tax consequences for you now and likely ongoing ones for her as well - at least as far as reporting income. Perhaps if you just name her as a beneficiary you're both in the clear -- my thoughts are here is where you need to be getting professional advice of which I'm not qualified to give.

I do know that things that pass POD are considered to be outside YOUR estate and don't undergo probate (at least that's what happens in our state.)

[bjl584]

Yeah, I'm probably going to have to go talk with an attorney in my area that knows the ins and outs of what it is that I'm trying to do. I'll have to do some further research. Thanks for your advice.

[sweeps]

My first thought was you need a life insurance policy covering you, but with your friend as the beneficiary. This should be allowed, since your friend relies on you for support.

[TBH]

Do you want your friend to know about it now, or would you rather she didn't find out unless something happened to you? If you are going to talk to her about it now, you could probably just work together with her to set up an IRA in her name and send regular checks to it. You'd have to talk to her about it to make sure she wasn't also contributing to an IRA. You can give someone up to 12K per year without being taxed, but of course IRA contribution limits are a lot lower than that. I know at Fidelity you can deposit money in someone else's account just by writing a check to Fidelity and putting that person's account number on the memo line.

[vsjhoc]

Very cool of you to do this for her. She must mean a lot to you.

I was thinking life insurance also. You can name anyone as a beneficiary; it doesn't have to be a dependent. She would receive the funds as soon as you, uhh, die, whereas if it's in an IRA she can't access it until her retirement age without paying tax and penalties.

If you don't want her to know about it, I wouldn't suggest putting it in a taxable account (mutual funds, etc.) because it may trigger tax consequences for her.

[creditcardfree]

The life insurance option would have no tax consequences.

[sweeps]

Originally Posted by creditcardfree

The life insurance option would have no tax consequences.

Exactly.

If the concern is to make sure someone is taken care financially after you die, (term) life insurance is the way to go -- just be sure to put the person down as the beneficiary.

I think trying to transfer assets either before or after death has tax issues, survivorship issues, and probably other issues as well. If you want to go this route I would definitely look into setting up a trust. I don't think a will is going to cut it. Of course a lawyer can hash all this out.

[JoyJoy]

Nolo.com is an interesting website to peruse this topic.

Our personal attorney recommended that we have a Will and a Revocable Trust that spells out what we are leaving each of our three sons and one niece. I would venture to say that these two documents would apply to your friend too. He also recommended that we have a Durable Power of Attorney for Health Care and a Financial Power of Attorney in place.

What an honorable thing to do. God bless you!