12 Assets To Avoid Leaving to Your Heirs When You Die

12 Assets To Avoid Leaving to Your Heirs When You Die

Jennifer Taylor Thu, December 12, 2024 GOBankingRates

You want to leave your loved ones with assets that will enrich their lives. However, not all assets are created equal. Despite your best intentions, some of the assets you plan to bestow upon your heirs might be more of a headache. Whether they’re difficult to manage or potentially costly, you won’t be doing them any favors.

GOBankingRates spoke with financial advisors to find out which assets you don’t want to pass on. Here’s what they had to say.

Tax-Deferred Accounts

You worked hard to save for retirement, so it makes sense that you want to leave any remaining balance in your accounts to your heirs.

“Tax brackets are key to building this proactive inheritance strategy,” said Chad W. Holmes, CFP, CPWA, founder and financial planner at Formula Wealth in Montgomery, Alabama. If you’re in a lower tax bracket than your children, he said it might make sense to advance IRA withdrawals over the period of a few years.

“By spreading out this taxable income over multiple years, they never have a spike in tax rates,” he said. “When they pay taxes on the tax-deferred assets, they’re able to put the money into an after-tax account where it can again be invested.”

Ultimately, he said this is the best way to ensure they get as much of your hard-earned money as possible.

“Now the higher tax bracket children will receive an asset that gets a step up in basis at death, essentially inheriting the funds with no built in gains or taxes,” he said.

Health Savings Account

An HSA can be a good or bad investment to pass on, depending on who the heir is in relation to you. If you leave it to a spouse, they’ll be able to continue using the money for medical expenses with no taxes or penalties, said Pam Horack, CFP at Pathfinder Planning LLC of Lake Wylie, South Carolina.

“However, if you leave an HSA to your child, estate or other organization, it may be considered income in the year it is received,” she said. “They are not allowed to use the tax advantages for their own healthcare, and the income could inadvertently throw your heirs into a higher tax bracket.”

Real Estate Properties With High Maintenance Costs

In theory, leaving real estate to your heirs might seem like a good inheritance, but it depends on the property.

 “Properties that require extensive upkeep, such as large estates or vacation homes, can burden heirs with ongoing expenses,” said Alex Doyle, CFP, wealth manager at Woodson Wealth Management in Rochester, New York. “Consider selling such properties or converting them into rental properties to generate income, or even donating them to a charitable organization.”

Illiquid Investments

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