Have you recently developed or reviewed your estate plan? An estate plan is not a “set it and forget it” type of plan. It’s more of a process than a singular event.
A person’s desires and goals can change over time, as can important laws. It is critical to periodically review your plan to ensure it is up to date and that you are avoiding some common estate planning mistakes.
1. Failing to understand the “state of your estate” – It is important to understand the estimated total value of your estate, what your documents say and how your assets and liabilities will be administered upon your death. A simulation of the events that will occur upon your death can provide clarity and identify those areas that need your attention.
2. Not sharing your estate plan with your children – At the appropriate time and after careful consultation with your advisors, it is important to share some or all the details of your estate plan and be available to answer any questions your children may have. Advisors can share with your children the same information post-death, but it won’t have the same impact as you having the conversation with them.
3. Leaving assets outright to your children – Leaving your assets outright to children, especially younger children, can have disastrous results. Utilizing trusts can provide some asset protection and the assets are still available for their health, education, maintenance and support.
4. Automatically choosing the oldest child as your executor/personal representative and successor trustee – Many parents rely on emotion or simply presume the oldest child should handle the administration of their estate and trust upon their death. This responsibility can require a significant amount of work and may go on for a period of one to two years or even longer with complicated estates. You want to choose the child(ren) and/or person(s) most capable of handling the responsibilities and who have the appropriate capacity to assume the role. In some situations, it may be prudent to utilize a professional.
5. Failing to review beneficiary designations and asset titling – Beneficiary designations and asset titling should be reviewed every one to three years as well as upon certain “life events” such as marriage, divorce, birth of a child or grandchild, move to another state, death of a beneficiary, or receipt of an inheritance.
- Have you recently reviewed your 401(k) and IRAs (Individual Retirement Accounts)?
- When was the last time you checked the beneficiary of your life insurance policy?
- Are your assets properly titled in your revocable living trust or do they have a transfer on death (TOD) designation?
6. Failing to consider state estate transfer taxes and inheritance taxes – This can have a significant impact on your estate plan and whether additional estate taxes or inheritance taxes are imposed upon your death.
- Fourteen states and the District of Columbia have an estate tax: Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington.
- Six states have an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania.
7. Failing to have a business succession plan – There are many tax and non-tax factors to consider when owning a family business. Failing to address certain aspects such as whether to sell the business during your lifetime, who will run the business when you are unable to and how estate taxes will be paid are critical factors in the successful transition of the business and family harmony.
Click here to discover some key estate planning strategies.