By Teresa Kuhn, JD, RFC,
CSA
The first thing you need
to know about estate planning is this:
Everyone has
an estate plan, whether they create their own via attorney-directed wills and
trusts, or whether they allow the state to enact a default plan on their
behalf.
This default plan, put
together through what are known as the laws
of intestacy, allows the state to decide who gets what when you die and
also lets them take the maximum amount of tax possible from your estate.
In my opinion this is the
very worst thing that could happen to the legacy you’ve worked so hard to leave
to your loved ones. Yet, there are
thousands of people who die each year without even a simple estate plan;
leaving their families to deal with taxes and other consequences.
So, the first mistake in
estate planning is simply to not have a plan in place when you die. What, then, are other common mistakes people
make when preparing for the final stage of life?
Estate attorneys have
identified some of the most common estate planning mistakes; mistakes that,
each year, result in a myriad of problems for the ones left behind.
Here are just 7 of the most common estate-planning
errors:
1. Forgetting the IRS is NOT on your
side. The government wants you
to die wealthy because it results in more cash for them. Therefore, they have a vested interest in you
not taking advantage of laws and strategies which can result in your estate
paying ZERO taxes.
You may realize
that there are only 3 real ways to reduce estate taxes: give money away while
you are still alive, spend the money now, or use a specially-designed trust
called a bypass trust that lets you give it away while you are alive while retaining
use of the money for yourself.
The IRS is banking
on you being the kind of thrifty, careful person who has a hard time letting go
of the money you so painstakingly accumulate…because they’ll have more money to
TAX!
2. Failing
to Ensure Benficiaries Are Correctly Designated on Retirement Accounts
Often times, the beneficiaries of retirement accounts will change, particularly if the primary beneficiary dies before the account owner.
In most cases,
the account owner is required to complete a new beneficiary designation form,
indicating the new beneficiary. Failure to do so might result in the
beneficiary being determined under the default terms of the retirement account
agreement.
Payout options
under most retirement plans often depend on whether the beneficiary is a spouse
of the account owner.. There can be unintended and adverse tax repercussions
for those who are not careful in this matter.
Because of the specially designed Bank on Yourself ™ whole life policies used in the financial plans designed by Living Wealthy Financial Group, inadequate life insurance is not a problem for our clients.
However, for most people it is a BIG issue.
According to a recent Metropolitan Life Insurance survey, more than half of the widows and widowers who collected life insurance proceeds in the United States received less than one year’s income.
If you are concerned about not having enough life insurance, please give our office a call to arrange a personal consultation. We can go over your insurance to ensure that you have the right amounts for your goals.
4, Wrong guardian listed for your children If you don’t have a will, the state decides who will care for your minor children. However, if you do have a will, be sure to review it regularly . Check to see if your original guardian is still valid and still willing to take on the responsibility. Things could have radically changed for your guardian such as their job situation or they could have new financial challenges.
5. No medical power of attorney and living will or those documents are not valid
Even if you have a medical power of attorney or living will in place, it is always best to assume that these documents weren’t correctly executed or notarized and are not valid.
Assuming this will force you to review those medical papers with an attorney to be sure they are valid in your state and that you’ve addressed every important issue.
If you do not have these documents on file, you are creating a potentially devastating situation for your loved ones should you become incapacitated due to a medical problem.
Without a proper durable power of attorney, no one can access funds to pay for your medical care or other bills. They will also be unable to legally sell your property such as a car or real property.
6. Trying to be “fair” with your children
If you have more
than one child, the temptation is great to want to divide your estate evenly
with all of them. After all, you reason,
you love all your kids the same so it is only fair that each one of them gets
the same share of your estate.
Unfortunately
this can be a great mistake, especially in the case of a family owned
business. If you have children who
participate actively in the business and others who do not, giving the
non-participating child a share equal to the children who actually work the
business can cause a lot of resentment and lead to family disputes.
Consider giving
shares of the business to your kids who actually work in it and then give non-business-related
assets to your other children.
If you feel that
this creates an intolerable imbalance, talk to my office about how to correct
such an imbalance by purchasing
additional life insurance or other methods.
7. Take
my debt, please…
Sometimes the law
of unintended consequences means that what is supposed to be a loving gift from
a parent to their offspring can turn into a stressful financial nightmare.
For example: when
an estate comprised of heavy illiquid assets is given to beneficiaries, Uncle
Sam wants his cut right away..
As a result, those
beneficiaries are often forced to borrow great amounts of money to pay estate
taxes because the assets which created the tax situation simply don’t generate
enough income to pay it.
It is common for
those loans to come from banks or other financial institutions, sometimes at
unfavorable interest rates.
Again, life
insurance is a great solution, providing liquid assets which can be used to pay
off taxes and other costs associated
with settling an estate.
Many of my
clients fund Bank on Yourself policies
with the express purpose of providing extra cash to their beneficiaries
to help them meet their tax obligations.
Conclusion
It never ceases
to amaze me that most people spend more time planning their social calendars
than they spend on planning their financial futures.
Yet, few things
will have as much impact on your happiness and sense of well-being than knowing
you have a current, complete estate plan in place.
If you haven’t
talked with an estate planner lately (or at all) call our office
today at (800) 382-0830
We can arrange a
free consultation with one of our hand-picked estate attorneys who have partnered
with us to provide competent, ethical, and thorough estate planning services to
all our valued clients.
