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If you’re like most, you want to be able to leave something to your progeny when you die. 10 mistakes to avoid estate planningLeaving a legacy for our children is just part of the American dream of wanting them to “have it better” than we did. But many well-intended parents have had their wishes left unfulfilled because of simple errors in estate planning.There are a few common mistakes that a lot of individuals make, that are easily avoided. Here are our top 10:

  • Not having an estate plan – The most common estate planning mistake is not having an estate plan. Mortality is a tough thing to think about, but not planning for your demise could leave everything you’ve worked for in the hands of people you would have never intended. That’s why it’s critical to have an estate plan.

  • Not updating your estate documents – As your family changes and its net worth changes, it’s important to continually revisit your will and trust documents to make sure that they accurately reflect how you want your estate to be handled. This not only ensures that your estate be dispersed in accordance with your your wishes, it can also help financially protect the people you care about.

  • Choosing the wrong team to plan your estate – It’s important to find the right person (or team) to plan your estate. An estate’s worth can be eroded by poor decision making, high fees and poor tax planning. You should choose a team of professionals with knowledge of federal and state tax and probate laws and tax codes who specialize in this area. . They should be able to create a plan that takes into account your wishes first and foremost and retain the greatest asset value for you and your heirs. Ideally your team members should have knowledge related to tax, finance, law, real estate and insurance issues.

  • Failing to plan for the unexpected – A long-term illness or disability could wreak havoc on your life and have a catastrophic impact on your estate. You should have a living will and durable power of attorney that allows others to make decisions related to your care if you’re incapable of making decisions yourself. In addition to long term disability, it may be advisable to have long-term care insurance as well. An extended illness can deplete liquid assets quickly and have a profoundly negative impact on one's estate.

  • Beneficiary Problems – Failing to name a beneficiary, or update beneficiary designations on retirement accounts and life insurance policies is a huge blunder that can cost your heirs. Failing to leave a beneficiary means that they will not be able to stretch out the disbursements over their lifetime, which could cost them a small fortune in taxes. Failing to update beneficiary designations after changes in marital status for example, could also put assets into the hands of intended recipients.

    Another serious mistake we see people make is failing to name alternate or successor beneficiaries in case you are predeceased by your named beneficiary. This can be a bigger deal than it sounds. For example, what if you left an inheritance to your three grandchildren and one passes away? Would the inheritance go to your remaining, living grandchildren or to the spouse of your deceased grandchild and their children (your great-grandchildren?) All of these factors must be taken into account when naming beneficiaries.

  • Being overly specific in your will – Using overly-specific language in your will can undue burdens for your heirs by making fulfillment of your wishes difficult or impossible for your heirs.

    If your will bequests a certain, specific stock to be left to your heir, you may be creating a very real problem if you no longer own it at the time of your death. Your estate may have to go out and purchase shares of that stock to fulfill your will and it may even be worth more than the value of your estate. If you leave a devise (real property) to an heir, if your will is overly specific as to the use of the property, it may create an encumbrance on the property making it harder to sell in the future.

  • Not addressing who will manage assets for minors – If you plan to leave part of your estate to a minor, it’s fairly important that you spell out who will manage their inheritance until they reach the age of legal majority. What portion of their funds can be used for their care while they are still a minor? Will the minor have any say in the use of their inheritance before reaching the age of majority? Can it be used for educational expenses while they are still a minor (e.g. private schools, etc.) Tools such as trusts can be useful in leaving assets to minors, and allow for great specificity in how funds can be used.
  • “Selling” property for $1 – You may think you’re doing your heir a favor by “selling” them your real property for $1 in anticipation of your death, when in fact, you may be inadvertently creating a problem. The IRS views the sale of real property below fair market value as a “gift” and includes the fair market value of the property in the calculation of one’s taxable estate anyway. This may also impact the tax basis of the property in the hands of your heir thereby causing them unintended consequences upon future sale of the property.

  • Not adding a residuary clause to your will – A residuary clause deals with all of the assets you have not specifically named in your will be dispersed. This would likely include assets you’ve acquired between the creation of your will and your passing. Do not assume that others know what assets you have.

  • Assuming that you “have time” – Facing your own mortality can be daunting, but not facing it can be reckless and dangerous. Estate planning isn’t something you can just “get when you need it.” You should plan your estate early and revisit it whenever you experience major life changes (e.g. marriage, birth of a child, birth of a grandchild, death of a spouse, receipt of an inheritance, etc.) Time can be a great ally if you invest early and shelter your income from taxes and other expenses.

Estate planning isn’t always fun, but it’s important. Providing a clear estate plan and handling the details of your estate can be one of the greatest gifts you can give your loved ones. Having a proper estate plan allows you to have a positive impact on future generations. If you’d like to learn more about estate planning, please contact us.