Leaving your loved ones an inheritance is a noble action done with the best intentions. You want to ensure they’re financially cared for after you’re gone. Some bequests can get complicated and may unintentionally cause more harm than good.
The last thing you want to do is to create problems for your heirs. You can remember them in your will, but you have to be mindful of the types of property you leave to them. It’s best to consult with a financial planner, but these are some of the assets you should never distribute in your will.
1. Cryptocurrency
The concept of cryptocurrency is hard to grasp for even the most financially savvy people. Leaving it as an inheritance comes with its own set of problems. For starters, not everyone is familiar with blockchain and how it works.
Just accessing cryptocurrency is a challenge for novices, and knowing what to do with it is even more difficult. If you don’t want to convert your crypto to traditional currency or investments, then make sure you leave easy-to-understand instructions on its management.
2. Health Savings Accounts
Health savings accounts or HSAs are a way to pay out-of-pocket medical expenses with pre-tax dollars. If you have one of these accounts, you’re able to leave the balance to your spouse to use without any penalties and is tax-free.
If you decide to leave your HSA as an inheritance to your estate, an organization, or a person who’s not your legal spouse, it may push them into a higher tax bracket because they can’t use it for their personal medical costs.
3. Some Types of Collectibles
Not all collectibles are created equal; some have monetary value and others have sentimental value. If you have a collection of vintage toys, antiques, or period jewelry, unless you know someone who wants them, it’s best not to leave it as an inheritance.
Recipients of collectible items may not want them and will likely sell them, give them away, or dispose of them. To spare your beneficiaries of this additional responsibility, try to sell them yourself or see if you can donate them to a museum.
4. Timeshares
Timeshares have a reputation for being expensive to maintain, and having rigid booking schedules, and their value depreciates rather than increases. Your timeshare may fit your specific needs, but that doesn’t mean it’ll fit the needs of your heirs.
If you want to leave your timeshare to someone else, check with them to see what their interest is. You could sell it or transfer ownership to them. If no one wants it, try to sell it on your own or cancel it with the help of a timeshare expert.
5. High Maintenance Real Estate
Gifting a home or land to someone in your will is a grand gesture, but if the property comes with high maintenance costs, it quickly turns from an asset to a burden. Think about the cost of upkeep before making a bequest.
If the cost of maintenance is unsustainable for your prospective beneficiary, then come up with different things to do with the property. Convert it to rental housing or sell it. Many charitable organizations accept real estate donations as well.
6. Improperly Insured Assets
Valuable assets, such as vehicles, real estate, or even jewelry, should be properly insured to protect yourself from an unexpected event that may result in partial or total loss. Keeping up this insurance protects you and your heirs.
Ensuring that the asset in question is fully insured comes with additional costs, but it is a necessary expense. If the insurance is something you can’t afford or don’t want to take on, then sell the asset instead.
7. Businesses
If you’re a fan of the show Succession, then you can appreciate what happens when a business succession plan isn’t in place. It could potentially lead to disputes between prospective heirs and damage the organization.
Another reason to have a succession plan is to ensure that the ones inheriting the business want to be involved and have an understanding of how to run it. If this isn’t an option, then you might want to sell the business and indicate in your will who the proceeds should go to.
8. Retirement Accounts
IRAs and 401(k)s are designed to supplement your income once you’ve stopped working. Leaving them to someone else after you pass away could potentially pose tax problems for them unless you engage in careful financial planning in advance.
Certain types of IRAs that are inherited may be subject to income taxes when money is withdrawn from them. Depending on the specific circumstances, taxes may be owed on 401(k)s that have been inherited. A financial planner can help you navigate these issues to minimize tax liabilities for your heirs.
9. Heavily Indebted Assets
Leaving assets to your heirs that carry a lot of debt can make their inheritance more of a headache than a benefit. Having them take on more debt than they already carry on their own can have serious financial implications for them.
To make things easier and less expensive for your beneficiaries, try paying down the outstanding debt as much as possible. If this can’t be done, see if there’s another asset to offset the debt, or consider selling it outright.
10. Rapidly Depreciating Assets
Some assets hold their value or increase in value over time. Other assets, like boats, luxury cars, and technologies, depreciate quite fast. Before listing these assets in your will, make sure they’re paid off so the liability for them doesn’t pass to your heirs.
If you’re unable to pay them off or pay them down substantially, consider selling them to settle the debt. Any funds left over can be used for bequests. Leaving the debt from a rapidly depreciating asset for someone else to handle is unfair.
11. Non-Liquid Assets
Non-liquid and liquid assets each have value but they’re not the same. The differences between them could have major implications for anyone you designate to inherit from your estate. It’s important to know these distinctions.
Non-liquid assets aren’t easily converted into cash without a financial loss; these include jewelry, vehicles, businesses, and investment properties. Liquid assets such as cash in bank accounts, annuities, and CDs can be easily converted into cash.
12. Family Heirlooms
No matter what their monetary value is, family heirlooms are priceless when it comes to sentimental feelings. That’s one of the reasons why the way they’re distributed in a will can cause tension among family members.
It’s hard to avoid this conflict, but there are ways to try to minimize it. You can give it in advance to those you know would want it and appreciate it most, or you can leave certain heirlooms to specific family members with an explanation of why you chose as you did.
13. Debt
Leaving inheritances to your family and friends is supposed to enhance their lives, not make it more difficult. Don’t leave them with your financial obligations. If you’re in debt, do what you can to pay it off so it’s not passed down.
If you don’t have the money on hand to pay down your debt or the amount you owe is substantial, get a part-time job or side hustle and use that money to pay your outstanding bills. That’s one of the best gifts you can give your loved ones.
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