Estate planning: Avoid common mistakes
A well structured estate plan not only helps to ensure one’s assets are handled in line with his or her wishes, but can also offer tax benefits and ultimately provide savings to an estate. There are various tools available to help meet these goals. Applicable tools can include:
- Will: A legal document that allows you to choose who will receive what portions of the estate.
- Trusts: A legal tool that also permits the owner to determine who benefits from the estate while potentially providing tax advantages and avoiding probate – a costly and sometimes time consuming court process used to distribute one’s assets.
- Living wills, health care powers of attorney, health proxies: These documents help determine who will make decisions for you if you cannot. They allow preferences to be set about medical treatment and health care options if unconscious or unable to communicate your wishes.
In order to make the most of these tools, it is important to be aware of some common mistakes.
Mistakes to avoid
Some of the most common mistakes made in estate plans include not providing enough liquidity within an estate plan, missing out on tax saving opportunities and not updating the plan. These mistakes were recently outlined by both Fox Business and Forbes.
Although putting the bulk of an estate in payable on death accounts can help avoid probate, it can cause issues for beneficiaries. Assets that remain in the estate are used to cover the cost of taxes and bills that are left behind. Without the ability to pay these debts, creditors may seek payment from loved ones. Accounts that fall within this group include joint accounts, life insurance policies with beneficiary designations and transfer-on-death accounts.
The second mistake that can be avoided with proper estate planning is the ability to take advantage of tax savings. One tool to help reduce the taxes owed by an estate is the use of gifts. Each estate can give up to $13,000 in gifts per spouse tax free. This reduces the overall estate, reducing what is taxed.
One gift that may be best avoided is the family home. Gifts over $13,000 in value are subject to taxes. If the deed to a home is transferred to a child that child may end up responsible for the taxes tied to the property.
It is also important to regularly update an estate plan. A grandchild may enter the family that is not included in the original plan or a divorce may result in the need to remove an individual from the plan. Proactively adjusting the plan can reduce the risk of unwanted results later on.
Estate planning is a complex legal process. In order to better ensure that your wishes are met, contact an experienced estate planning lawyer.