Leaving specific assets to specific heirs may lead to unintentional outcomes
Does your estate plan leave specific assets to specific family members? If so, you may want to reconsider your plan. While it may be tempting to say, leave your son your classic car and give your daughter a family heirloom, doing so risks inadvertently disinheriting other family members, even if you’ve gone out of your way to ensure that they’re treated equally.
Let’s consider an example. Dan has three children, Susan, Peter and Emma. At the time he prepares his estate plan, Dan has three primary assets: company stock valued at $1 million, a mutual fund with a $1 million balance and a $1 million life insurance policy. His estate plan calls for Susan to acquire the stock, Peter to gain the mutual fund and Emma to become the life insurance policy’s beneficiary.
When Dan dies 15 years later, the values of the three assets have changed considerably. The stock’s value has dropped to $500,000, the mutual fund has grown to $2.5 million and he inadvertently allowed the life insurance policy to lapse.
The result: Although Dan intended to treat his children equally, Peter ended up with the bulk of his estate, Susan’s inheritance was significantly smaller than expected and Emma was disinherited altogether. To avoid unintended results like this, consider distributing your wealth among your heirs based on percentages or dollar values rather than providing for specific assets to go to specific people.
However, if it’s important to you that certain heirs receive certain assets, there may be planning strategies you can use to ensure your heirs are treated fairly. Returning to the example, Dan could’ve provided for his wealth to be divided equally among his children, with Susan receiving the stock (valued at fair market value) as part of her share. That way, Susan would have received the stock plus $500,000 of the mutual fund, and Peter and Emma would each have received $1 million of the mutual fund.
Contact us if you have questions regarding how your estate plan currently distributes your assets among family members. We can help determine if all your heirs will be treated equally.
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