Upon your death, your loved ones will be grieving your loss. Don't make the process more difficult by failing to properly plan for your death. Here are some things to avoid in order to ensure your final wishes are met and make the process smoother for your loved ones:
1. Staying ignorant about the process
As with most things, but especially with estate planning, when you don't know what you're doing, mistakes practically make themselves.
If you don't want to leave a mess for your family, you need to bone up on the subject. But don't think that scanning a book or two will enable you to do it all yourself. Keep in mind that an estate plan is basically a way to distribute your money after you die, minimizing taxes and fees. Hiring a good estate-planning attorney to do this is highly recommended -- and not that expensive.
2. Being clueless about the role of wills
Many people think a will acts as a free pass around probate court -- a common misconception.
A will is simply a letter of instruction appointing someone to be in charge of your estate and specifying how you want your estate to be distributed or divided, but it doesn't avoid probate.
Instead of simply writing up a will, we recommend putting assets into a living trust -- especially if you own real estate or have over $100,000 in savings.
3. Putting your kid's name on the deed
Adding your kid's name to the title of your house is not a good way to pass the old homestead on to the next generation. Tax implications make it a clunky way to bequeath assets.
Several problems can emerge when someone puts another's name on a house. First, it's a gift, and the most you can gift to somebody (without notifying the Internal Revenue Service) is $12,000 a year. So, if the house is worth $200,000, and they put your name on it as a joint tenant with right of survivorship, they just gave you a $100,000 gift for which they have to do a gift-tax report, which then becomes a matter of public record.
This also means you lose tremendous tax benefits that you would have received had you inherited the house. When you inherit property, you get a step up in cost basis on it. So if you inherit a house and the value of it is worth $500,000 on the day you inherit it, and you then turn around and sell it for that, you don't pay any tax because that's your new cost basis.
Worst of all, you lose control and ownership interest of your own property. Your own child can kick you out of your home once they have an ownership interest. Don’t think it can’t happen. Money changes people. Further, if your child has a judgment against him or her, that judgment or lien can be recorded on your property if your child has an ownership interest in it.
In sum, gifting your real property to your children during your lifetime is a big mistake.
4. Dawdling indefinitely
Procrastination may be forgivable for young singles with no dependents, but if you never get around to doing anything, the grief experienced by your survivors will be compounded.
Inaction all but guarantees that tensions will run high after you die. Anyone with a significant amount of assets, who has children or a spouse should make up a will probably at least by heir 30s or 40s. You are never too young. Estate planning is not only for the elderly.
5. Not trusting trusts
Going through probate, a necessity if you die intestate (without a will), will result in your estate paying too many fees. Though often discussed, federal estate taxes won't even touch most estates, but court costs definitely will if not planned for. Why fritter away as much as 10% of your assets built throughout a lifetime of hard work?
A huge benefit of having a trust is to avoid probate, because that allows your estate to pass to your loved ones without having to to the court. It just goes directly to your heirs and minimizes many of the expenses to your estate.
6. Leaving messy financial records
Pawing through someone else's disorganized records isn't anyone's idea of a good time. Add in grief and the stress of trying to unearth a will or some other evidence of planning, and it's downright chaos.
Keeping track of all of your information and organizing it in a recognizable way is vital. Social Security numbers, insurance policies, the name of the companies you do business with, your brokerage accounts and where they're held, and account numbers should all be included.
7. Giving your ex-spouse a parting gift
Failing to occasionally update an estate plan or make changes to beneficiaries after divorce, marriage or other life changes spells trouble.
Major changes such as having children or buying and selling property warrant changes in your will or trust. Equally important are making changes to beneficiary designations on retirement accounts and insurance policies, as those forms trump a will.
Dying without a will or a without naming a guardian often leaves a big mess for loved ones.
8. Plan for your own Incapacity as well
Besides easing the transition after death, leaving specific instructions about your medical care while alive -- specifically, in the form of a medical directive -- also comes in handy.
We definitely recommend a health-care power of attorney if you are temporarily disabled, a financial power of attorney for someone to pay the electric bill and the gardener and the mortgage if you are disabled. There's also a very important document known as a healthcare directive which appoints someone to make medical decisions for you in the event of incapacity and puts your final wishes regarding life support into writing.
If you avoid the above mistakes, you will ensure a smoother transition of your property to your loved ones and minimize the tension, expenses and acrimony that results from failure to plan.
This really hits home for me and my wife. We had to settle each of our parent's estates and both estates were extremely disorganized. This is exactly the reason we invented Estate++, so that others can avoid the problems we encountered.
Posted by: James Bell | July 08, 2008 at 11:04 AM
My husband and I are 2nd marriage. He has rental properties that were constructed after his 2 boys were grown. I have 2 teenagers. He wants to leave 1/3, 1/3, 1/3 to his sons and me. I do not want to be an older woman and be in partnership with my step-sons, or, my kids for that matter. I want him to leave everything to me and have an inurance policy that benefits his sons and me. I also want when I decease for his sons to get 60% and mine 40%. His kids would have the option to buy mine out. That is the approximate ratio of each of our essets at the time of marriage. I came into the marriage with the home and investment accounts. I would leave my investments to my kids and my home to my husband knowing the properties have a regular monthly income.
Our original agreement was to leave each other everything and then after the last deceases give the 4 kids each 25% It has gotten so complicated and it is affecting our marriage. We have been to 4 professionals for help and are still miles apart.
Posted by: Niknik | November 25, 2008 at 08:04 AM
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