April 2025 – CEPAN Corner

Asset-Based Estate Planning Considerations

For many families, material wealth consists of a residence, vehicles(s), bank accounts, and retirement accounts. This categorization often carries over to estate planning. The estate plan may be consistent among the various assets if you leave all your assets to your surviving spouse or equally to your children.

In other families, the allocation may be different. If one child is living in residence, a parent may designate the co-inhabiting child as beneficiary or co-owner of the residence. To equalize other children, the parent may designate them as beneficiaries of a bank account or retirement account. Unfortunately, this type of “asset-based” planning often creates more problems than it solves.

1. Problem #1: Our assets and their values are not fixed. From the moment the asset-based plan is established, it will be changed by outside factors. The values of real estate and stock investments are constantly changing. If the objective of the asset-based plan was equality among different beneficiaries, it violates this goal immediately as the values change. Laws may also affect the asset-based plan. After age 73, certain retirement assets must be periodically withdrawn from retirement accounts, which may reduce the inheritance for the beneficiary of that account.
2. Problem #2: You may not always be able to “fix” the asset-based estate plan. To solve problem #1 above, you may intend to re-allocate among your various accounts to ensure each beneficiary receives your intention. This is a noble goal in the best circumstances, but as life presents its predictable challenges, it is rarely possible to monitor as necessary to achieve this goal.
3. Problem #3: You will create a conflict of interest among your beneficiaries. While we hope to maintain mental competency until death, there often comes a time when a trusted family member must take control of our finances. By adopting an asset-based estate plan, your trusted family member will face a conflict of interest as they decide from which source to draw funds to provide for your care. Suppose one beneficiary is intended to receive the residence. Is the trusted family member permitted to sell the residence if you can no longer reside there or if funds are needed for long-term care? Does the beneficiary of a retirement account use the funds from that account or from a bank account of which they are not the beneficiary?

Solution: 

Incorporating specific assets into an effective estate plan must be designed to ensure that the share each beneficiary receives is determined separately from the particular asset. Your children may be equal beneficiaries, but the plan allocates the residence to the share for the beneficiary who is residing in the residence. The other children would receive a more significant amount of cash, securities, or other assets. If there is not enough value to treat the children equally, then the plan should contemplate “abatement,” which is the reduction of inheritance due to the transferring of the value of the assets.

Exception: 

Matthew L. Brown

One category of assets deserves special treatment – tax-deferred retirement accounts. The tax rules for these accounts create benefits for particular beneficiaries instead of co-mingling these assets among the residue of the estate plan. Traditional (pre-tax) retirement accounts have increased value when charities are designated. Roth (after-tax) retirement accounts have increased value when individuals are designated. Even these assets, however, must be coordinated with the overall plan to avoid the problems listed above.

While asset-based planning seems straightforward for DIY estate planning, it often creates unintended consequences that require legal intervention after death or disability to correct, if possible. Suppose you intend to leave a specific asset to an individual or charitable beneficiary. In that case, you should review this plan with your estate planning advisors to ensure that you have not created the problems described above.

Article written by:  Matthew L. Brown, local attorney and member of the Charitable Estate Planning Advisors Network

Established in 2025, the Charitable Estate Planning Advisors Network (CEPAN) comprises of local professionals providing estate planning services, including attorneys, trust officers, CPAs, wealth advisors, and insurance agents. The purpose of the CEPAN is to inspire the use of the Community Foundation as a resource for professional advisors and their clients as well as to exchange information at the intersection of estate planning and philanthropy.

If you have any questions about the information below or the CEPAN, please contact Community Foundation Executive Director Dan Templin at 815-748-5383 or dan@dekalbccf.org.