The goal of estate planning is to ensure the transfer of your assets to your loved ones after your death efficiently and maximize tax savings. There is no one plan for everyone – it depends on you, your family, your assets and your desires. Unfortunately, not everyone pays as much attention to their estate plan as they should or follows the advice of their attorney.
During the estate administration process, it is easy to see where the deceased has strayed. Often the solution was inexpensive and could have saved his heirs a lot of money in legal fees. As they say, hindsight is 20/20.
These are the 10 most costly mistakes I’ve seen in wealth management:
• Inadequate Funding of the Trust. He invested time, money, and effort in creating a trust, but he never took the last and often most critical step to make sure his assets are in the trust now or will flow into the trust after the death of the trust. he. Failing to do so could mean that the assets never reach your trust and their intended beneficiaries.
• Unintended Beneficiary Designations. If your will leaves your nieces and nephews assets, but your large retirement account names your cousin as beneficiary, your nieces and nephews may receive little or nothing under the will. Review your beneficiary designations to make sure his assets are flowing the way you want.
• Insufficient cash to pay for gifts. It is important that your estate have enough cash to pay for the specific gifts listed in your will. Remember that retirement accounts and life insurance pass out of the will and go directly to the designated beneficiaries. If the only asset that passes under your will is your home that you want to leave to your children, but your will includes cash donations to charities, you will need to sell the home to pay for the charities.
• Lack of understanding of how estate taxes are paid. Estate taxes are paid on all of his assets, not just the assets that pass under his will. When you leave your retirement and life insurance accounts to designated beneficiaries, it’s often difficult to get them to pay their fair share of estate taxes. Your loved ones who inherit under the will are often forced to pay all the taxes. Be sure to structure your plan so that the tax liability is consistent with your intentions.
• Forgetting to update your estate plan after a divorce. Unfortunately, this happens a lot. You never removed your ex-spouse as a beneficiary of your retirement account or life insurance. Or even worse, you were required to maintain a life insurance policy for your ex-spouse after her divorce, but instead changed the beneficiary to her new spouse. I have seen these scenarios play out time and time again, often leading to costly lawsuits.
• Have an “old” will. Laws change, people die, and your intentions may have changed. Be sure to review your will with your attorney every few years (or sooner if you’ve experienced a major life event) to make sure it doesn’t need to be updated. Often a simple upgrade can save your heirs from costly headaches down the road.
• Poor communication about who gets what. Mom leaves her precious family beach home to her son, but she doesn’t tell her daughter that she won’t have it. This can result in years of litigation in which the daughter claims that the mother intended for her children to share her home. Set expectations. Otherwise, her family members may be fighting in court.
• Skip the formal enforcement process. Your lawyer wrote you a will, but you decide to have it signed on your own with some friends as witnesses. However, if the will is executed incorrectly, it could be declared invalid or open the door for some of your heirs to file a challenge to the will.
• Drafting your own will. The creation of a will is based on state laws and decades of case law. If items are missing from the will or if the language is unclear, it could lead to a challenge to the will or the executor having to seek guidance from the court. Either way, it prolongs estate administration and increases costs.
• Not making an estate plan. Not having a will or trust can lead to family members fighting in court over your intentions or the court supervising all aspects of the administration. This is particularly true if you have minor children, since they cannot inherit money. The court will appoint a guardian to take care of the minor’s estate and then oversee the money spent.
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