Sadly, there are ways in which the after-death distribution of a deceased person’s estate could end up not matching the deceased’s goals for the distribution.
One way is if a person failed to have an estate plan. Without an estate plan, it is state law (specifically state intestacy law), rather than a person’s wishes, that dictates how estate assets will be distributed when they die. This could result in a distribution far different from what the person desired.
Another thing that could result in an after-death distribution that fails to achieve the deceased’s goals is a person having an estate plan that is not properly aligned for achieving their goals. One thing that could cause this type of misalignment is failure to take into account all relevant factors when forming an estate plan.
Many different factors can be relevant ones when it comes to estate planning. One is potential tax implications.
For example, certain assets, like IRAs, have embedded tax liabilities that the recipient of the asset could face after the asset is given to them in an after-death distribution. When an asset has an embedded tax liability, what tax bracket the recipient of the asset is in can affect what financial impact the asset will have on them overall. Thus, failure to take tax implications into account when making plans regarding the after-death distribution of assets like IRAs could lead to a distribution having a different financial effect on the recipient than the deceased thought it would, which could cause the distribution to deviate from the deceased’s goals.
Another tax implication that can arise in relation to an estate is the estate tax. Certain high-value estates can trigger such a tax. Thus, when one has a high-value estate, ignoring estate tax issues could result in a higher estate tax liability than necessary, which could get in the way of goals a person had regarding how much property would go to their beneficiaries.
So, failure to take into account potential tax implications and other relevant factors in estate planning could have many negative effects. This is why solid legal advice is such an important thing to have when forming wills and doing other estate planning. Skilled estate planning lawyers can help individuals with identifying important factors to take into account when estate planning.
Source: MarketWatch, “Why your siblings may be inheriting more than you,” Brian Vnak, Oct. 25, 2015