Skip to main content

Common Estate Planning Mistakes

The most common way to transfer assets to your heirs is also the messiest: to have a will that is so out of date that it doesn’t relate to your property or estate, to have your records scattered all over the place, to have social media, banking and email accounts whose passwords only you can find—and basically to leave a big mess for others to clean up.
 
Is there a better way?
 
Recently, a group of estate planning experts were asked for their advice on a better process to handle the transfer of assets at your death, and to articulate common mistakes.  The list of mistakes included the following:
 
Not regularly reviewing documents.  What might have been a solid plan 15 or 20 years ago may not relate to your estate today.  The experts recommended a full review every three to five years, to ensure that trustees, executors, guardians, beneficiaries and healthcare agents are all up-to-date.  You might also consider creating a master document which lists all your social media and online accounts and passwords, so that your heirs can access them and close them down.
 
Using a will instead of a revocable trust.  This relates mostly to people who want to protect their privacy.  When assets pass to heirs via a will, the transfer creates a record that anybody can access and read.  A revocable trust can be titled in your name, and you can control the assets as you would with outright ownership, but the assets simply pass to your designated successor upon death.
 
Failing to fund the revocable trust.  You’ve set up the trust, but now you and your team of professionals have to transfer title to your properties out of your name and into the trust, with you as the trustee.  If you forget to do this, then the entire purpose of the trust is wasted.
 
Having assets titled in a way that conflicts with the will or trust.  You should always pay close attention to the beneficiary designations, because they—not your will—determine who will receive your IRA assets.  Meanwhile, assets (like a home) owned in joint tenancy with rights of survivorship will pass directly to the surviving joint tenant, no matter what the will or trust happens to say.
 
Not using the annual gift exemption.  People can gift $14,000 a year tax-free to heirs without affecting the value of their $5.49 million lifetime gift exemption.  That means a husband and wife with four children could theoretically gift the kids $112,000 a year tax-free.  That can reduce the size of a large estate potentially below the gift exemption threshold, and in states where there is an estate tax, it can help there as well.
 
Not taking action because of the possibility of estate tax repeal.  Yes, the Republican leadership in Congress includes, on its wish list, the total repeal of those estate taxes.  But what if there’s no action, or a compromise scuttles the estate tax provisions at the last minute?  Federal wealth transfer taxes have been enacted and repealed three times in U.S. history, so there’s no reason to imagine that even if there is a repeal, the repeal will last forever.  Meanwhile, dynastic trusts and other estate planning tactics provide tangible benefits even without the tax savings, including protecting assets from lawsuits and claims.
 
Leaving too much, too soon, to younger heirs.  Nothing can harm emerging adult values quite like realizing, as they start their productive careers, that they actually never need to work a day in their lives.  The alternative?  Create a trust controlled by a trusted family member or a corporate trust company until the beneficiaries reach a more mature stage of their lives, perhaps 30-35 years old. Also, some prefer to keep the assets in trust forever for asset protection purposes and the beneficiary becoming trustee and beneficiary of the trust at a mature age.
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA

Adapted with permission from BobVeres.com

Popular posts from this blog

Did You Do as Well as Your Mutual Fund?

It's common practice to look at a fund's total return number for a snapshot of what performance to expect, but that won't give you the full picture. Morningstar studies have shown that investors' actual gains frequently pale in comparison to reported total return numbers. This phenomenon frequently plays out among funds that attract assets after streaks of hot performance, only to see some investors get skittish at the first signs of underperformance . After a moment's though, even a novice investor will realize that this behavior is just the opposite of the mantra -- buy low and sell high. This practice can be more broadly attributed to bad behavior and lack of a plan or philosophy when it comes to investing. Investors are human and humans are emotional. As much as the logician in me would like to believe my left brain is working to drive my decision making, logic comes in after emotions are experienced to provide context for how we are feeling and not the other ...

Healthcare Reform Explained

If you're like me, you find the 1000 page plus Heathcare Reform Act a bit confusing. This nine minute animated movie -- featuring the "YouToons" -- explains the problems with the current health care system, the changes that are happening now, and the big changes coming in 2014, produced by the Kaiser Family Foundation. Kevin Kroskey, CFP, MBA

The Cruel Psychology of the 1,000-Point Drop

If you don't already read Jason Zweig's regular column in the Wall Street Journal, you should. He is one of the few financial journalists worth reading. His recent article on the psychology of the recent market drop is rational and instructive. ==== Click here to read the article in it's entirety: http://blogs.wsj.com/moneybeat/2015/08/24/the-cruel-psychology-of-the-1000-point-drop/ See below for a snippet: Experiments have shown , for instance, that people believe cancer is riskier when they are told that it kills “1,286 out of 10,000 people” than when they hear that it kills “24.14 out of 100 people.” Hearing “1,286” immediately brings a large number of victims to mind, while “24.14” is simply a much smaller number. To notice that the first number is less than 13%, while the second is more than 24%, you have to focus on the denominators of the fractions and do some quick division. But your emotions will likely hijack your brain long before you get to that poi...