Planning your estate around specific assets is risky and, in most cases, should be avoided. If you leave specific assets—such as homes, cars or stock—to specific people, you may inadvertently disinherit them. Here’s an example that illustrates the problem:
Andrew has three children—Robert, Anna and Tim—and wishes to treat them equally in his estate plan. In his will, he:
- Leaves a $500,000 mutual fund to Robert
- Leaves his $500,000 home to Anna
- Names Tim as beneficiary of a $500,000 life insurance policy
By the time Andrew dies though:
- The mutual fund balance has grown to $750,000
- Andrew has sold the home for $750,000 and put the proceeds into the mutual fund
- Andrew allowed the life insurance policy to lapse
He didn’t revise or revoke his will. The result? Robert receives the mutual fund, with a balance of $1.5 million, and Anna and Tim are disinherited.
To avoid this outcome, it’s generally preferable to divide your estate based on dollar values or percentages rather than specific assets. Andrew, for example, could have placed the mutual fund, home and insurance policy in a trust and divided the value of the trust equally between his three children.
If it’s important to you that specific assets go to specific heirs—for example, because you want your oldest child to receive the family home or you want your family business to go to a child who works for the company—there are planning techniques you can use to avoid undesired consequences. For example, your trust might provide for your assets to be divided equally but also provide for your children to receive specific assets at fair market value as part of their shares.
Other related articles: Avoid Risks in Your Estate Planning, Estate Planning Back on Track, Foolproof Estate Planning? Consider 3 Strategies, Think About a Qualified Personal Residence Trust — QPRT
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