The Retirement Corporation of America

Making Sure The Right People Get Your Wealth

EVERYONE HAS LOVED ones or special people they want to remember in their will: spouses, life partners, children, other family members, and others who have shared special memories or helped in some measureable way. Unless you die penniless, there will be wealth to be divided up. A wise estate plan details how that wealth should be distributed.

For the most part, it will be pretty obvious to whom you leave your wealth:
your spouse, your children, or your significant other. Most people, if they are married, simply leave everything to their spouse. However, if they are in a second marriage, they may allocate a substantial part of the estate to their children from the first marriage.

What will be distributed, of course, is defined by what assets are in your estate at your death.

It's how you make sure that the right assets go to the right people that raises the complicated issues that an estate plan is supposed to resolve.

Avoiding the Most Common Inheritance Mistakes

The most common mistake is not asking enough of the magic question: What if?

What if the size of the estate goes up? What if it goes down? What if you get divorced? What if one of your kids gets divorced? What if a child has a medical problem that will require special care? Those "what if" questions go on and on and on. You won't know that you have an inheritance plan that makes sense until you have asked enough intelligent "what-if" questions and made sure that the answers are covered in the estate plan.

The size of the estate certainly will be different when you die than it was when you made the will. Most likely, if you have managed your finances well, it will be bigger. Since there is no possible way to know in advance how much the estate will change, you must be flexible in preparing your estate plan so it works as you intended it to, no matter how big the estate.

One estate lawyer offers a worst-case example of what can go wrong with an inheritance plan. It involves an estate that was worth $1 million when the father made the will. He bequeathed $300,000 to each of his three children, and the remainder of the estate to charity. That was 10 years earlier and he had never revised his will. At death, the estate had grown from $1 million to $10 million. Under the terms of the will, only $300,000 went to each child and all of the rest to a designated charity.

The easiest way to avoid inheritance mistakes is to recognize that the value of what you bequeath will change between the time you write the will and the time you die. Deal with that by bequeathing percentages of your estate—as opposed to setting down fixed-dollar amounts in your will.

Handling Bequests So There's No Friction Within the Family

The greatest single source of friction within the family over bequests is when you don't divide your estate equally. When you vary from absolute equality, you are going out of your way to ask for trouble.

The client of one attorney left 60 percent of her estate to one child and 40 percent to the other because one of the children needed the money more. The client wasn't being realistic about the reaction that dividing the estate unequally was certain to cause.

Try to divide your estate equally among all your heirs. If you feel that you must vary from equality, make sure that you understand the attitudes of all the people involved, and your own motivation for doing what you are doing.

The surest way to avoid family friction is to talk everything out ahead of time, so that everyone knows what your intentions are, and everyone knows in advance what they are going to inherit. The time to "hash out" inheritance issues is when you are alive and can make changes in your will if they seem appropriate. Yet inheritance plans are seldom talked out in advance.