Estate Planning Mistakes

Estate plans are not simply for the rich. Most people can benefit from a well designed estate plan, if they will take the time to avoid the pitfalls inherent in the process. Below you will find 10 estate planning mistakes that you will want to avoid – along with a couple of bonus points for charities and non-profits who are designing estate planning programs for their organizations.

  1. Not having a plan at all. If you don’t designate where your savings and assets go, someone else will. All too often, especially in larger estates that responsibility will be turned over to the government, the IRS, or some high-priced executor or attorney.  In each of these cases, much of the money you have worked so hard to preserve will be lost in taxes and legal fees.
  2. Failing to address changes in your estate. Even though statistics show that as few as three in ten people have a will or estate plan, the number of people who actually take the time to update their wills is even fewer.  Assets grow, investments change, and it is vitally important to review your will on an annual basis. I find the best time to do this is when you are compiling information for your taxes.
  3. Putting your child’s name on the deed to property.  Some people feel this is a way to circumvent an estate tax when in reality it creates a huge taxable asset and burden on your children.  There are better avenues for handling property and assets.
  4. Choosing the wrong person as executor of your estate.  Many people feel that appointing a child or family member as executor is a smart move (and can be under the right circumstances), but it can also be filled with problems. It can create family disputes, challenges, or they simply may not be qualified to handle the estate. Having someone who isn’t emotionally invested may be a better decision.
  5. Failing to plan for disability. Not all decisions involve the death of an individual.  What happens to the estate when someone becomes physically or mentally unable to manage their assets. This often causes a great deal of conflict and division in the family. If someone is designated to make those decisions in advance it alleviates many of the problems.
  6. Failing to use charitable trusts to protect assets. Transferring estate assets into a charitable remainder trust or charitable lead trust can help the estate to avoid large tax burdens and depending on the type of trust, can distribute funds over years or decades to reduce the tax burden.
  7. Not taking advantage of spousal exemptions through a credit shelter trust. Through this mechanism up to $675,000 can be protected from taxes when your spouses dies.
  8. Not making gifts to reduce estate tax. According to the IRS code up to $14,000 a year per spouse can be gifted to your children. That is a total of $28,000 per year you can provide tax free to your children helping them and reducing future estate taxes.
  9. Not using an estate professional. Estate laws, regulations, and benefits change each year and that includes federal and state requirements. It pays to hire a professional familiar with the laws in your state to set up your estate plan.
  10. Procrastination. An estate plan is not an issue you should put off till a more convenient time. It needs to be set up now and reviewed each and every year. The time and cost involved is recovered over and over again when the will must finally be executed.

And now a few bonus points for non-profit organizations that have estate planning departments:

  • Don’t be over zealous in pursuing estate gifts. Most effective estate planning departments realize that a well executed estate plan first helps the donor, and then provides for the charity. By helping donors better understand the law and benefits the charitable organization will always come out ahead. Integrity pays.
  • Always use their attorney. Offering to supply an attorney for a donor is a sure way to have the family file a law suit based on undo influence. You may help their attorney, educate their attorney, or assist, but make sure there is always the appearance of being there for support, not financial gain.
  • Stay Informed. Estate law changes all the time. Understand how estate planning benefits your donors. Helping them to help their families, secure their estates, and make wise, informed decisions is the best way to insure you are included in their estate plan.

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