TEN ESTATE PLANNING MISTAKES TO AVOID
Many people are motivated to begin estate planning because they are frightened by the high estate tax rates. They utilize a number of sophisticated estate planning techniques to avoid estate tax and then inadvertedly frustrate the plan by making a simple mistake. Following are ten common mistakes to avoid.
- Failure to update an estate plan. We don’t like to think about dying so once an estate plan is set-up we don’t want to think about it again. It’s important to remember that changes is health, family relationships (birth, death, divorce), and finances require revisions to your estate plan.
- Failing to fund a living trust. Many individuals create a sophisticated estate plan using a living trust. Yet, too many failed to transfer the necessary property to the trust. This inaction defeats the purpose of a living trust.
- Not having a will. There really isn’t much more to say about this. Without a Will probate property will pass according to the state intestacy laws at possible increased cost. Personal wishes, whether written or oral, probably won’t be followed without a will.
- Naming the wrong executor. The tasks facing an executor are often formidable and demanding. Spouses and close family members are under enough stress. Many times a professional or trust company is a better choice.
- Having too little information about the decedent’s estate. If life insurance policies, information about bank accounts, IRAs, safe deposit boxes and other assets are scattered there is a real risk that some assets will be left uncollected, undistributed and even lost.
- Holding too much property as Joint Tenants with Right of Survivorship. It’s true that titling property as JTWRS avoids probate. However, it does not avoid estate taxes. In addition, improperly titling property can frustrate an estate plan because at death property tilted JTWRS goes to the surviving joint tenant regardless of what a will says.
- Leaving too many assets to a surviving spouse. Leaving all of your property to your does avoid estate taxes at the first death because the marital deduction has no limit. However, leaving all of your assets to your spouse wastes the unified credit of the first spouse to die. Also, it is often better to pay some estate taxes at the first death to take advantage of the lower marginal rates.
- Failure to equalize assets through gifts between spouses. This is another example of improper titling and wasting the unified credit. If all property is titled in one spouse’s name and the non-titled spouse dies first then no property passes under his/her credit.
- Being both the donor and custodian of a UGMA/UTMA account. When an individual creates and contributes to a Uniform Gift to Minors account and is the custodian the account will be includible in the individual’s estate and possibly subject to estate taxes.