Estate Planning Basics: Tips On Avoiding Common Mistakes
Putting together an estate plan is a step that can help ensure a legacy lasts long after one’s passing. A strong estate plan can take advantage of many legal tools, including trusts and a well-thought out succession plan if a family business is involved.
In order to help ensure an estate plan is successful it is important to review and make alterations after any major life event. These can include the addition of a family member through birth or marriage as well as a new influx of wealth.
While reviewing an existing estate plan or putting together one for the first time, it is important to be aware of some common missteps.
Common estate planning missteps
One common mistake involves using an unbalanced plan. Estate plans that focus too heavily on transfer-on-death accounts, beneficiary designation accounts like life insurance plans and joint accounts may lack the funds needed to pay off medical bills acquired by the owner prior to death. Additional funds may be required to cover various fees and taxes. Although many bills are forgiven at death, some are not. Bills that can require satisfaction even after death include taxes and, in some situations, a lack of liquidity in an estate plan could lead to the IRS demanding payment from loved ones.
In addition to making sure that funds are available to pay off potential taxes, it is also important to take steps to avoid unnecessary taxation of an estate. Various estate planning tools can be used to reduce the amount of taxes owed on an estate. Proactive steps can be taken during life to reduce taxes. One step involves making gifts to loved ones. When done correctly, these gifts are tax-free and allow for an opportunity to lower the taxable estate by taking advantage of the gift tax exemption.
A misstep that can lead to litigation of the estate plan, and costly bills for all involved, is a lack of communication. When a plan is developed, make the people that are impacted aware of its existence. Sharing the details of how the plan is structured is also helpful. Making family members and loved ones aware of the basics can help reduce the risk of litigation, along with strife and confusion, after one’s passing.
It is also important to meet with experienced professionals to ensure a plan meets your needs. This can include an attorney, tax expert and various financial professionals.
Whether putting together an estate plan for the first time or updating a pre-existing plan, it is important to contact an experienced estate planning lawyer to better ensure the plan meets your needs.