Avoiding Unintended Outcomes in Estate Planning
Posted by Amanda Ornowski on January 23, 2025
When planning your estate, leaving specific assets to specific heirs might seem like a good idea, but it can lead to unintended consequences. For instance, you might want to leave your son your classic car and your daughter a family heirloom. However, this approach can inadvertently disinherit other family members, even if you intend to treat them equally.
Consider this example: Alex has three children, Jamie, Taylor, and Morgan. At the time of creating the estate plan, Alex's primary assets include company stock valued at $1 million, a mutual fund with a $1 million balance, and a $1 million life insurance policy. The plan designates Jamie to receive the stock, Taylor the mutual fund, and Morgan the life insurance policy.
Fifteen years later, the values of these assets have changed significantly. The stock's value has dropped to $500,000, the mutual fund has grown to $2.5 million, and the life insurance policy has lapsed. As a result, Taylor ends up with the bulk of the estate, Jamie's inheritance is much smaller than expected, and Morgan is disinherited altogether. To avoid such outcomes, consider distributing your wealth based on percentages or dollar values rather than specific assets.
If it's important for certain heirs to receive specific assets, there are planning strategies to ensure fair treatment. For example, Alex could have divided the wealth equally among the children, with Jamie receiving the stock (valued at fair market value) as part of their share. This way, Jamie would get the stock plus $500,000 of the mutual fund, while Taylor and Morgan would each receive $1 million of the mutual fund.
If you have questions about how your estate plan distributes your assets among family members, feel free to contact us. We can help ensure that all your heirs are treated equally.
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Amanda joined the Lumsden team in 2021 and has over 15 years of experience in the accounting industry. Her background spans both public accounting and corporate tax, allowing her to offer a well-rounded perspective on tax and financial planning. Amanda works closely with high-net-worth individuals and multi-generational families, delivering tailored, comprehensive solutions to address their tax and financial needs. She specializes in business and individual tax consulting, with a focus on professional services, retail and manufacturing industries, as well as investment partnerships and family foundations.