10 Costly Estate Planning Mistakes and How To Avoid Them

1. I DON'T NEED A WILL: Everyone can benefit from a will or some other form of estate planning. Avoiding or reducing estate taxes, saving estate administrative costs, specifying who will receive your estate and protecting your family are just a few of the benefits a will can achieve. Nevertheless, there are rare circumstances when the benefits derived from a will do not justify the initial expense. However, for the vast majority of us, the benefits from a will or some other estate planning technique, far outweigh any initial costs associated with implementing an estate plan. Click here to learn how to get started
   
2. PROCRASTINATION: Once a person recognizes the fact that they could benefit from some sort of estate planning, they often wait until it is too late. Unexpected death or disability can occur at anytime.
   
3. FAILURE TO UTILIZE THE FEDERAL $650,000 EXEMPTION TWICE: If you are married, you and your spouse are each entitled to the $650,000 federal estate exemption thereby shielding $1,300,000 from estate tax. The mistake is when the first spouse to die leaves their entire estate to the surviving spouse thereby losing their $650,000 exemption amount. Instead, the spouse should leave all or a portion of their estate to a trust called an exemption (also know as a credit shelter trust).
   
4. INCORRECTLY TITLING PROPERTY: Do-it-yourself estate planners often add children or others to bank accounts, investment accounts, real estate titles and other property to avoid probate and/or plan for disability.
   
   Adding others to titles and accounts can have serious unintended consequences. For one, the added person’s creditors may be able to access the property to satisfy their debts. You may even find a child’s spouse in a divorce claiming a portion of the property. In addition, gifts taxes may be triggered as well as the loss of significant tax benefit such as a stepped up basis upon your death. Further, by adding the person you have given up significant control of that property. If, for example, you added your child to the deed of you home, it may be impossible to transfer the property should the child withhold their consent.

   A revocable living trust can avoid probate and plan for disability without exposing you to the pitfalls of adding children or others to the title of your assets.

5. LIFE INSURANCE: Most people fail to realize that life insurance proceeds are normally included in the estate of the deceased. This can mean that only half of the insurance proceeds go to the intended beneficiaries while the remainder goes to the IRS. A relatively simple trust know as a Life Insurance Trust can avoid the taxation of life insurance proceeds and control to disposition of the proceeds upon your death.
   
6. INCORRECT BENEFICIARY DESIGNATIONS: Individuals often implement a well thought out estate plan only to have it undermined by an incorrect beneficiary designation. The most common, but certainly not the only mistake, is naming minor children as contingent beneficiaries.
   
   For example, assume parents have wills that specify that in the event of both of their deaths that their estate be placed into a trust for their children’s benefit until the children reach age 25. This is done to avoid the children receiving a large sum of money at age 18 as the parents recognized the negative effect that a large inheritance could have on a child.

   Unfortunately, with the children named as contingent beneficiaries of the life insurance they will receive the proceeds at age 18. In addition, the courts will normally require that a conservator be appointed to control the money while the child is a minor, which will have the effect of depleting the insurance proceeds.

   An alternative is to name your estate or a trust directly as the contingent beneficiary. However, the exact beneficiary designation that is appropriate will depend upon the type of will or estate plan that you have in place, as well as other factors.

7. FAILING TO PLAN FOR DISABILITY: People are living longer and therefore the risk of being disabled sometime during your lifetime is increasing. A disability can be far more financially devastating than death. Nevertheless, disability planning is often ignored. For a further discussion click Living Trusts.
   
8. GIFTING WHEN YOU SHOULDN’T AND NOT GIFTING WHEN YOU SHOULD: When properly applied, gifting can be an extremely effective way to reduce estate taxes. However, many individuals incorrectly assume that gifting is simple and fail to obtain competent advice.
   
9. DOING IT YOURSELF: This may sound like self serving advice coming from an estate planning attorney, but estate planning is simply not a do it yourself project. In New York, if you fail to follow strict legal formalities, the will may be held invalid.
   
10. HIRING A GENERALIST: When hiring a doctor, attorney, mechanic or any type of service profession, I strongly recommend hiring a specialist. Almost without exception, the specialist will have more experience and skill in their area of specialty than will a generalist. This usually translates into higher quality services provided in the most cost effective manner possible.

• Visit our Acclaimed Estate Planning Education Page
• Intestacy - who will receive your property if you do not have a will
• Free Estate Tax Analysis
• Estate Tax Calculator - how much tax will your estate pay?
• How to Get Started
• Health Care Proxy
• Estate glossary