As you decide where you want your money to go when you pass on, you may be considering beneficiaries outside the family. Perhaps you have few relatives left or that you are close to. Or maybe you have special people in your life that you want to thank for their service (such as a caregiver) or that you want to care for (such as someone you mentor).
You have different options for how to leave these people money, each with its own advantages and disadvantages. Reviewing them all with your attorney can help you ensure that you make the right choice to avoid unnecessary estate taxes and will contests.
Direct expenses and gifts
While you are still alive, you can pay for expenses directly to avoid rules about gifts and inheritances. For example, you can pay for someone’s college education or medical bills straight from your account.
If you would rather give the money over to the person, you can transfer it as a gift. The government allows up to a certain amount ($15,000 per donee for 2018) that you can claim as exempt from taxes when you file.
You can include non-family members in your will, but be sure to do so carefully to avoid disputes. Use clear language and warn your loved ones in advance to eliminate surprise. Even if you think your family would not have an issue with or already expect certain people getting some money, talk to them about your intentions.
One of the best ways to secure assets for a friend or companion is to set up a trust. Trusts help to avoid probate while also avoiding mismanagement of money. You can have more control over when the person receives the money and how she or he will use it, unlike with a gift. This approach may also settle any family concerns over you, including non-relatives in your estate plans. Which type of trust to establish depends on the recipient, asset and situation.