I'd like to discuss eight critical estate planning mistakes that can create serious problems for those you leave behind.
These estate planning mistakes can be easily avoided.
1.
No Plan At All: Probably the worst mistake you could make is having no plan at all.
It is estimated that between 50% and 70 % of Americans do not have a Will.
You are the only one who can protect yourself, your loved ones and your hard-earned assets.
The intestate laws of Connecticut will determine who inherits your assets when you have no Will.
You can refer back to the February, 2009 issue of STRUCTURES to see what that Will would look like.
Also remember to review and update your estate plan regularly.
2.
No Estate Tax Planning: With proper planning, a married couple can protect up to $4 million from State of Connecticut estate taxes and $7 million from Federal estate tax.
The basic level of planning to accomplish this is called a "Credit Shelter Trust".
In larger estates, irrevocable life insurance trusts, qualifired personal residence trusts, charitable trusts and family limited partnerships can be used to protect assets from estate tax.
Without such planning, an unexpected and surprisingly large estate tax due can be due.
3.
No Incapacity Planning: There is more to estate planning than distributing assets after death.
A comprehensive estate plan begins with planning for your own incapacity.
You should name a health care representative to make health care decisions for you if you can't.
You should have a Living Will to prevent unnecessary or unwanted life support.
Either a durable power of attorney or a living trust should be in place to handle your affairs if you're not able to.
4.
No Guardians for Minor Children Named: Parents devote considerable time to providing for the needs of their children.
But, these same parents often fail to appoint guardians for their minor children in the event both parents are gone.
Who should be the guardians to raise your minor children? What special instructions would you give them? You must legally appoint the guardians in your Will.
Most importantly, a stanby guardian is an absolute must.
Many people rely on a guardian designation in their Will.
But, this would be completely ineffective if the parent is disabled or cannot be immediately located.
5.
No Planning for Life Insurance: Life insurance is a useful financial tool for many Americans to help support a surviving spouse and minor children or to pay estate taxes.
One of the greatest tax myths is that life insurance is tax-free.
Even though the death benefit is income tax-free to your beneficiary, the entire value of the death benefit is counted for estate tax purposes.
You can structure life insurance to avoid estate taxes and still fulfill your objectives through a properly structured "Irrevocable Life Insurance Trust".
Otherwise, you could unintentionally make the IRS a beneficiary of nearly half of your life insurance.
6.
No Planning For "Out of State" Real Estate: If you own real estate outside your home state, a probate proceeding may have to be opened in that other state to transfer title to that "out of state" real estate.
This can be avoided if you make appropriate legal plans in advance.
The probate process is much more burdensome in some states than in others.
7.
No Tax Planning for Qualified Retirement Plans: A great deal of the wealth in America is currently in qualified retirement plans.
Without careful coordination more than half of your retirement assets can go to the IRS instead of to your loved ones.
The effect of taxes on these assets can be substantially reduced with proper planning.
8.
No Lifetime Gifting Plan: A terrific planning opportunity is the annual gift exclusion.
You can give up to $13,000 each year to as many individuals as you want without any gift tax due.
This removes the value of the gifted asset from your estate and removes any future appreciation on the gifted asset.
But, be careful because lifetime gifts can be subject to capital gains tax later on.