Common Estate Planning Problems:
One of the most common mistakes that people make in estate planning is that once they establish the plan, they do not review it on a regular basis to include any additional assets that they acquire. For example, if you only had a bank account with enough money to cover your funeral expenses and then you win a lottery, you will have to have plans in place for the disbursement of the funds, so that this money is not subject to taxes and that each of your heirs will get equal amounts. You may want all of it to go to a specific charity, but if this is not detailed in your estate plan, it will not happen. You may start to dabble in the stock market and make a lot of money after your estate plan is written. You need to make arrangements for the sale or transfer of the stocks to a specific person. The provisions of your will cannot change the name of the beneficiary of any of your accounts, which includes life insurance. You need to review your will when planning your estate as well.
Some people believe that having the title of property jointly held with the children is a good substitute for a will. This is not the case, because once you transfer the title of your property to someone else, it is irrevocable. This means that no matter what happens you cannot get back the title and the person that holds the title has the power to dispose of the property as they see fit, even before you die. If, for example, you transfer the title of your home to your son or daughter and he/she falls into tax default, the IRS could actually seize the home and sell it to get back the tax money owed because the title is not in your name. If you transfer the title to your child and his/her spouse, you also have to plan for divorce. This property may have to be sold as part of the divorce settlement.
Underestimating the value of the estate is a common mistake that many people make. You cannot look at the value of property when you purchased it. You have to look at the value of it in the present and future tense. If you purchased a home for $150,000 and then made extensive renovations, this increased the value of the home. You also have to look at the property values in your neighborhood and the value of your furniture and any vehicles that you own. All of these are factored into the value of an estate along with life insurance benefits, bank accounts, and any other monies that you have. While you might think that a value of $1.5 million is way more than the value of your estate, once you sit down and start adding everything up, you will realize that it is not a high value at all.
Think about the death taxes that your heirs will have to pay on your estate. Your estate could be subject to state death taxes even if there are no federal taxes due. You need to know the laws of any state in which you own property so that you can minimize the effect that the taxes can have on any inheritance you pass on to your heirs.
There is a difference in the amount of gifts that can be transferred tax-free while you are alive than the amount that can be considered tax-free after you die. Currently you can give away up to $1 million tax-free during your lifetime, but the sheltered amount after you die is $1.5 million. If you are worried that your estate would be subject to taxes after you die and you have a substantial amount of money, you can actually disperse some of it while you are alive.
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