These are the pitfalls to avoid when performing proper estate planning procedures at any age
To ensure that your estate passes to your loved ones with minimal expenditures, proper measures must be taken to minimize tax liabilities and avoid probate. Not only can probate be significantly more expensive than setting up a living trust, but passing your estate through a will or intestate exposes your family to estate taxes of approximately 45-55 percent.*
In addition, the probate process can take up to two years even for a simple estate. Many people often make mistakes regarding estate planning, with the most common being:
Doing nothing. Without a proper estate plan, even if you have made out a will, your estate will be subject to the rules of the California probate court. If you pass on without a will, your estate will go through “intestate succession,” which is determined by the California Probate Code and may not reflect your true intentions.
Failing to benefit from the tax exemptions available. Proper estate planning avoids unnecessary tax liability upon death. With proper estate planning, a married couple can be exempt up to $4 million in assets, as opposed to only $2 million with no planning. Proper estate planning can potentially result in a $900,000 tax savings to the beneficiaries.
Drafting a will without a living trust. In order to protect your estate from entering probate, you need a revocable living trust in addition to your will. Without a living trust, your estate must be settled in probate court. Probate fees are determined by statute and can be up to $33,000 on a $2 million estate. Probate is not only expensive, but is also a public process. All probate proceedings are published thereby leaving your estate settlement open to public involvement. Alternatively, a living trust administration is more private and only involves the individuals you have named in your trust documents.
Joint Tenancy. You may have put your children or others on title to your property in order to avoid probate. However, there are several pitfalls of owning property in joint tenancy. For example, if the joint tenant has creditors, your property will be exposed to liability. If you put your child on a house you currently own, the joint tenancy must be reported to the IRS because it can potentially be a taxable gift. Additionally, after your passing, whoever inherits the property will be forced to pay a higher capital gains tax upon a sale as opposed to if they had inherited it directly from you. After your passing, if the joint tenant suffers a divorce, the former spouse can claim ownership of the property.
“Transfer on Death” or “Paid on Death.” Despite your intent to avoid probate, a Transfer on Death or Paid on Death account can end up being probated if any of the listed beneficiaries are deceased at the time of your passing.
As you can see, taking these easy steps beforehand will save you much time and money in the long run. And please consult a professional to map out the best plan for your unique situation.
*The estate tax rate depends on the exemption amount as determined by the Economic Growth and Tax Relief Reconciliation Act of 2001.
The copyright of the article 5 Top Mistakes in Estate Planning in Estate Management is owned by Samuel B. Ledwitz. Permission to republish 5 Top Mistakes in Estate Planning in print or online must be granted by the author in writing.
