Carissa Giebel column Common Estate Planning Mistakes
12:00 AM, Sep. 27, 2011 |
A common mistake in estate plans is the failure to review and update. Too often people think once they finish an estate plan, they are set for life, but nothing can be further from the truth.
Often times, additional assets are acquired after the estate plan has been done or various assets are sold. If any newly acquired assets are beneficiary-designated assets, it’s important to list the beneficiaries properly. Sold assets will no longer go to the anticipated beneficiary. Occasionally this gets overlooked and can unintentionally disinherit a loved one.
Net worth can go up or down, either of which can affect tax planning. Tax laws are changing often, so it’s always a good idea to have your plan reviewed regularly to make sure it’s still up to date and accomplishing your goals.
Nursing home care concerns may arise, at which time there is additional planning to consider. Contrary to what most believe, there is always a way to protect assets, usually half or more can be protected, whether someone is about to go into the nursing home or has already been there for awhile. It’s best to be proactive and plan before care is imminent, although in any circumstance, assets can be protected with the right planning.
Family dynamics change, which affects planning. With a divorce or a second marriage, planning absolutely needs updating. If a beneficiary gets married, has children, has financial difficulties, or has a special need, there are likely changes to make.
It’s not a good idea to own property jointly with children, or worse yet, having the title of an asset completely put into a child’s name. Gifting can be dangerous without the proper planning worked out through a professional. For example, if you add a child to your asset or put it in their name, and he/she has tax defaults, the IRS could seize the asset, even if it’s the home you live in. If a child gets a divorce, the asset may have to be sold as part of the divorce settlement. If you go into a nursing home, there could be serious penalties for gifting any amount. There could also be tax disadvantages. Allowing beneficiaries to inherit, rather than gifting to them during life, could give them significant tax advantages.
Try to avoid writing “my estate” as a beneficiary on an asset. That takes an asset that wouldn’t otherwise have to go through probate, and now forces it through probate, meaning more expenses, longer lag time until distribution, and less overall for beneficiaries.
Ask your loved ones which personal items they want, including jewelry, dishes, tools, etc. Account for their wishes in your plan. Don’t assume they will all get along and agree on how to divide it. Without planning, these little things can tear families apart.
If you have a trust, fund it. A trust can be a valuable estate planning tool, avoiding probate for beneficiaries and providing asset protection for the inheritance you leave your loved ones. This can be the best type of asset protection available, if the trust is set up as such. Probate is only avoided if all assets are properly funded. Confirm beneficiary designations are updated according to the trust plan.
One of the biggest gifts you can leave your loved ones is a well thought out estate plan. Plan ahead for contingencies. This is what leaving a legacy is all about!