Estate planning helps an individual prepare for the transfer of wealth after his or her death. Many people shy away from creating or even contemplating an estate plan, and misconceptions about this process abound. Ten problems commonly encountered in the estate planning field can be easily avoided with a proper estate plan.
1. Leaving everything to your spouse.
Some people believe that their estate will not have to pay state or federal estate taxes because of the unlimited estate tax marital deduction. The marital tax is actually a tax deferral. Upon the death of the surviving spouse, all assets that spouse received (plus appreciation) will be combined with the assets the spouse already owned and will be subject to tax.
2. Leaving assets outright to beneficiaries.
Assets left outright to beneficiaries are not protected from creditors or divorcing spouses. Placing that asset in certain trusts will give the beneficiary access, but block a creditor or ex-spouse.
3. I’m too young for estate planning.
This belief does not prevent the many premature deaths each year. Anyone over the age of 18, especially those with young children, should consider having an estate plan.
4. Leaving a living trust unfunded.
If you create a trust to avoid probate, leaving it unfunded will defeat this purpose. After executing a trust, you should fund the trust with assets so that they pass outside of probate.
5. Not planning for incapacity.
Estate planning is planning for your life, as well as your death. Executing a health care proxy, power of attorney and living will ensures that your health and finances are taken care of if you are incapacitated. These simple documents are as important as your will and trust, and may bypass a costly guardianship proceeding.
6. Creating a plan without legal counsel.
Estate planning is not one size fits all. Laws are complex and each plan should be tailored to your particular circumstances. Filling out forms online will not consider all of your financial and personal goals to create the most fitting estate plan.
7. Estate planning is only for the wealthy.
Some believe that if their estate is smaller than the federal and state exemptions, they do not need an estate plan. However, a complete estate plan ensures management of your affairs, implementation of your wishes for property and medical decisions, and peace of mind that any minor children will be cared for by the people you chose and not the courts.
8. Naming the wrong people as executors and trustees.
Select an executor and trustee who will have the time and ability to implement your wishes. Avoid selecting out-of-state and out-of-country fiduciaries. Your estate plan is only as good as the people who manage your estate.
9. No estate plan.
When there is a will there is a way, but without a will, New York (or the state in which you reside) will write a will for you, and you might not like what it says.
10. Neglecting to update your estate plan.
Life circumstances change and new tax and or estate laws are passed each year that may affect your plan. Re-evaluate estate plans every five years or whenever there is a major life change to ensure your plan continues to reflect your wishes.
Kelly McGowan is an associate in the trusts and estates practice group at Meltzer, Lippe, Goldstein & Breitstone, LLP, in Mineola.