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You’ve left specific assets to specific heirs

Posted On: JANUARY 2024

When creating your estate plan, it may be tempting to leave specific assets to specific loved ones. Perhaps you want your oldest child to have the family home or a stock that has sentimental — as well as financial — value. Unfortunately, by doing so you risk inadvertently disinheriting other family members, even if you’ve gone out of your way to ensure that they’re treated fairly. Consider the following example:

Lucy has three children, Susan, Peter and Emma. At the time she prepares her estate plan, Lucy has three main assets: company stock valued at $1 million, a mutual fund with a $1 million balance and a $1 million life insurance policy. She leaves the stock to Susan, the mutual fund to Peter and appoints Emma the beneficiary of the life insurance policy. When Lucy dies 15 years later, things have changed considerably. The stock’s value has dropped to $500,000, the mutual fund has grown to $2.5 million and she has allowed the life insurance policy to lapse.

The result: Although Lucy intended to treat her children equally, Peter ends up with the bulk of her estate, Susan’s inheritance is significantly smaller than expected and Emma is 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 that your heirs are treated fairly. Returning to the previous example, Lucy could’ve provided for her wealth to be divided equally among her 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.

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