Keep Bequests in Balance with Percentage Provisions

If you are like most of us, you probably have contemplated how much of your estate you would like to leave to the people and organizations important to you. At first blush this seems like a pretty straightforward decision.

To be sure, it is often not a complicated process to decide on bequests; however, specifying some bequests in exact dollar figures rather than percentages can have a significant impact on how your assets are distributed—and possibly result in distributions other than what you desired.

For example, suppose that when you plan your bequests your estate is worth $2,000,000 and you decide to leave $250,000 to each of your three children, $250,000 to our organization, and everything else to your spouse.

But what if over time there are dramatic shifts in the value of your assets, perhaps due to major moves in the stock market?

If your estate declines in value …

If the value of your estate drops to $1,200,000, your children and our organization still get $250,000 each; however, due to the order in which these types of bequests are fulfilled, your spouse gets only the remainder—$200,000. That may not be at all what you intended.

If your estate increases in value …

If the value of your estate grows to $4,000,000, your children and our organization still get $250,000 each—and your spouse gets $3,000,000. If you had expected your estate to be worth so much more, you might have wanted your children or our organization to receive larger bequests.

Planning pointer: An easy way to provide for these kinds of contingencies is to make percentage bequests instead of bequests of a specific amount. Under this approach, you would leave one-eighth of your estate to each child and to our organization, with half going to your spouse.

In the case of the estate value declining from $2,000,000 to $1,200,000, the children and our organization would each get $150,000 instead of $250,000—and your spouse would get the other half, $600,000.

In the case of the estate value doubling to $4,000,000, each child and our organization would get $500,000 and your spouse would get $2,000,000.

The percentage bequest helps ensure that your true wishes are fulfilled.

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