The Biggest Estate Planning Pitfalls
At a meeting of Georgia estate planners recently, everyone was advised that many things had to change because of tax law and demographic changes in recent years, if the goal was to pass on as much wealth as possible to the next generation. And since that is almost always the goal, well, that means some changes.
For one thing, with the high estate-tax exemption, passing money to the next generation tax-free is less of a focus than ever before. However, that doesn't mean you don't need a plan. In fact, it means you need a plan more than ever, because the focus has shifted in recent years, from tax avoidance to protecting and preserving the family's legacy.
That can mean different things to different families, but generally speaking, it means adopting a number of tactics, such as education funding, charitable endowments, safety-net trusts and investment trusts that can be used to fund the family for generations forward. However, it also means avoiding a number of pitfalls that too many people fall into that can throw a monkey wrench into everything. Here are some of the key estate planning mistakes that too many people make:
Failing to plan properly for incapacity. People are living longer these days, and they are more mobile than ever before. However, while they plan well for the day they die, they often forget to plan for the time before they die, which can be difficult and long, and may happen at the most inopportune time. That means everyone needs a complete set of medical directives and durable powers of attorney that are enforceable in any state.
Failing to make sure assets are in the right hands. It's important that the people assigned to make certain decisions are qualified for such decision, or at least can be trusted. You don't want an executor for your estate's assets who is completely irresponsible with money, for example, and you don't want someone making medical decisions for you who is against what you have planned for yourself in that area. Make sure they are comfortable with your DNR order, and your desire for cremation rather than burial. Also, make sure you spell out exactly who should get custody of your children in a specific document.
Failing to plan for aging parents. Relying on an expected inheritance as a retirement plan is quite foolish, in part because there is no way to know how long they will live or how much they are spending. Not only that, but if they live far longer than expected, they may need support. In a number of states, there are also statutes allowing creditors to go after children to recover the cost of their parents' care. In other words, there's a good chance that the inheritance may not even exist when the time comes.
Failing to plan for retirement assets. Don't just confirm both primary and contingent beneficiaries, but be sure to plan for what would happen if a beneficiary dies first, because the state will tend to distribute that money to people you might not want to have it. For example, if your child is a beneficiary and that child dies, many states will redistribute that money to other siblings rather than that child's own heirs.
Failing to account for unique personal property. There are several things to think about when it comes to this. For example, what if a firearm you want to leave is illegal where your heir lives? Before you leave your frequent flier miles to an heir, make sure the airline allows such a thing. Before you agree to leave all of the videos you have stored on a cloud service, make sure you are allowed to do that. Also, be extremely careful when it comes to reproductive assets, especially spelling out the rights of a child who was born using frozen reproductive assets.
