By Alan Goldfarb, CFP®, AIF®
You've worked your assets off to build your wealth and create an estate for your family. It would be a crime if they couldn't enjoy what you've labored so hard for. Planning for the disposition of your property after you are gone is a privilege and a responsibility. Often your family's financial security and future happiness may be dependent upon how efficiently your assets are transferred. Efficiently disposing of your property by means of a will and trust documents ( assuming you've got them in the first place and that they're up to date ) requires positive action on your part. The most common mistakes are as follows.
1. Not Funding Your Living Trust
Many individuals have attempted to install a modern estate plan and use a living trust. Yet, too many fail to transfer the necessary property to the trust, which is like having a conductor without an orchestra.
2. Too Much JTWROS Property
Titling assets under joint-tenancy-with-right-of-survivorship does avoid probate, yet does not avoid estate taxes. Further, improper titling can frustrate an estate plan because property titled JTWROS goes to the surviving joint tenant regardless of what a will says.
3. Leaving Too Many Assets to a Surviving Spouse
Leaving all your property to your spouse does avoid estate taxes at the first death due to the unlimited marital deduction. However, such a plan wastes the first-to-die spouse's unified credit. It may also often be better to pay some estate taxes at the first death at lower marginal rates.
4. Not Equalizing Assets Through Gifts Between Spouses
This is another example of improper titling and wasting the unified credit. Having all property titled in one spouse looks silly when the non-titled spouse dies first and does not pass on any property under their credit.
5. Not Having a Will
Do I really need to say more? Property of the decedent will pass under the state intestacy laws at possible increased costs. Personal wishes, whether written or oral, will most likely not be followed in the absence of a will.
6. Improper Ownership of Life Insurance
Most policies are owned by the insured, payable to the insured's estate or survivors and therefore are included in the owner's taxable estate. Policy owners should consider giving policies directly to the beneficiaries or transferring them to an irrevocable trust to avoid a large estate tax bite.
7. Being Donor & Custodian of a UGMA Account
Creating and contributing to a UGMA account of which you are the custodian will cause the account to be includible in your estate and possibly subject to painful estate taxes.
8. Not Knowing Where All the "Stuff" Is
A scattered estate plan by a secretive decedent may cause some assets to be left uncollected, undistributed and even lost.
9. Naming the Wrong Executor
The tasks facing an executor are often formidable and demanding in all but simple estates. Spouses and close family relatives are under enough burdens. A professional or trust company is often a better choice.
10. Not Periodically Updating an Estate Plan
People don't like to think about dying and therefore want to set up an estate plan and be done with it. However, many economic, health and family changes require revising your estate plan. It's best to work with an experienced financial advisor who can help make the necessary modifications.
Conclusion
If you find yourself guilty of any of these goof-up's, now is the right time to correct them. Get with your advisors, make them aware of all your circumstances, and let them counsel you on the latest tools and techniques. It would be a pity, if what you've worked so hard for, was wasted.