The process of inheritance can often be fraught with complications that can lead to family disputes, financial losses, and unintended consequences.
But it does not have to be that way. The good news is that many of these problems are avoidable with proper planning and foresight.
David Kaplan, Co-founder of Willed, an online platform for end-of-life planning, shares his insights on common inheritance issues and how to avoid them.
1. Lack of a Clear, Up-to-date Will
One of the most fundamental yet often overlooked aspects of inheritance planning is having a clear, up-to-date Will.
"You would be surprised how many people either don't have a Will or haven't updated it in years," says Kaplan. "When life changes through marriage, divorce, birth, death, and so forth, make sure that your Will reflects these changes."
Passing without a valid Will can lead to lengthy legal processes and potential family disputes. So take responsibility and sort it out for yourself and for those close to you.
Solution: Review and update your Will regularly, ideally every 3-5 years or after any major life event.
2. Failure to Consider Tax Implications
Inheritance tax laws vary significantly between countries and can have a substantial impact on the value of assets passed down. In fact, in countries like the USA and Australia, inheritance laws can and do vary at the state level as opposed to federally.
"Many people aren't aware of the tax implications of inheritance in their jurisdiction," Kaplan notes. "This lack of awareness can lead to unexpected tax burdens for beneficiaries."
Solution: Consult with a tax professional or financial advisor to understand the tax implications of your estate plan.
3. Overlooking Digital Assets
Many of us have accumulated significant online assets, from cryptocurrency and social media accounts to photos and email inboxes, which can be easily overlooked in traditional estate planning.
"Digital assets are a relatively new consideration in estate planning, but they're becoming increasingly important," says Kaplan. "Without proper planning, valuable or sentimental digital assets can be lost forever."
Highlighting the scale of the issue, a 2021 survey commissioned by the Law Society found that 93% of those surveyed who had a Will failed to mention their digital assets in it.
Solution: Create a digital asset inventory and include instructions for their management in your Will or estate plan.
4. Lack of Communication with Heirs
Many inheritance disputes arise from a lack of clear communication. Heirs may have different expectations or misunderstandings about the estate plan.
It’s important to have a frank conversation with your family about your estate plans. It's not the easiest discussion, but it's a necessary one, and one that can prevent a lot of potential conflicts down the line.
Solution: Have open conversations with your heirs about your estate plans and the reasoning behind your decisions.
5. Failure to Plan for Incapacity
Most people think of inheritance in terms of what happens after passing away, but there’s another equally important eventuality to plan for: potential incapacity.
"Many people overlook the possibility of becoming incapacitated and unable to manage their own affairs," Kaplan points out. "Without proper planning, this can lead to court interventions and potential conflicts among family members."
With the number of people living with dementia expected to triple by 2050 according to the WHO, this aspect of end-of-life planning should not be overlooked.
Solution: Consider setting up an enduring power of attorney and advance care directive to ensure your wishes are respected if you become incapacitated.
6. Neglecting to Consider International Assets
For earlier generations, estate planning was typically locally defined. But with so many retirees moving and living abroad, it's now increasingly common for people to own assets in multiple countries. Unsurprisingly, this can complicate inheritance matters significantly given the different — and possibly conflicting — jurisdictions involved.
"International assets can be subject to different laws and tax regimes," Kaplan explains. "Without proper planning, this can introduce complex legal issues and potential double taxation."
Solution: If you own assets in multiple countries, consult with legal and financial experts familiar with international estate planning.
By being aware of these common pitfalls and taking proactive steps to address them, you can ensure that your legacy is passed on smoothly and in accordance with your wishes. Remember, estate planning is not a one-time event but an ongoing process that should evolve as your life circumstances change.
"The key is to start planning early and review your plans regularly," Kaplan concludes. "It's one of the most important gifts you can give to your loved ones."
For more information on David Kaplan and his thoughts on end-of-life planning, visit Willed.