It is a common misconception that estate planning is only for the rich. Most people have at least one thing of significant value – such as a home, car, insurance, money in a bank account and so on. Having an estate plan secures your assets and saves your loved ones from undue emotional and financial stress in case of your death or incapacity.
An estate plan also helps with maximizing the actual value of the estate you’ll bequeath to your heirs and beneficiaries. And allows you the opportunity to make informed decisions concerning how your assets should be handled while you are still alive.
Below are ten common mistakes in California estate planning and how to avoid them:
1. Failing to make a plan
The most common mistake is not recognizing how critical it is to have an estate plan in place. It is an unfortunate fact of life that we will all die someday and planning for what may happen after death is critical to securing the future of your heirs.
2. Failing to update your will
Births, deaths, divorces, and new property acquisitions – it’s hard to keep up with the changes in the family and business.To ensure the assets you leave behind are given to your intended beneficiaries, it’s best to remind yourself to periodically review your will – say, every year as you celebrate your birthday, for example.
3. Failing to plan in case of sudden disability
Disability could adversely impact your personal and financial affairs. Have you thought about who will handle your finances, raise your children, or make healthcare decisions when you fall ill and become disabled? It’s critical to appoint a power of attorney and create a living trust to act on your behalf in case you are unable to.
4. Failing to donate or send gifts
Sending donations or gifts under your estate plan reduces your estate taxes. According to the Internal Revenue Code, gifts up to $14,000 a year per spouse may be excluded from estate tax. That’s $28,000 in savings. Your act of charity will be rewarded with more money in your estate for distribution.
5. Putting your child’s name on the deed
When you put your child’s name on the deed to your home, you are, in effect, giving your child a hefty taxable gift. (Refer to number 4). While gifts up to $14,000 are excluded from estate tax, gifts more than $14,000 per spouse are taxable. The best thing to do is to place the home in a trust for inheritance.
6. Failing to appoint the right trustee
While you may trust your spouse or child more than any other person, they may not be suited to handle the affairs of the estate when you are gone. Sometimes it’s wiser to appoint someone outside of your family to objectively handle the extensive duties and demands required of an executor, trustee, or guardian.
7. Failing to transfer your life insurance policies to a life insurance trust
A life insurance policy is subject to estate tax when you die and a sizable chunk of your estate could go to the IRS instead of your intended beneficiaries. One way to avoid this is to set up a life insurance trust to act as the owner of your life insurance policies. This way you shield the insurance from a hefty tax so your beneficiaries can get the full amount of the insurance proceeds.
8. Failing to take advantage of federal exemptions
For married couples, one of the easiest ways to reduce estate taxes is to fully use the federal exemption for each spouse (set at $11.18 million per spouse in 2018). Surviving spouses are allowed to make a “portability election” which passes any of the deceased spouse’s unused exemption to the surviving spouse, in effect potentially doubling the exemption amount for the surviving spouse.
Death comes for us all and though you may already realize that an estate plan benefits you, sometimes this realization comes a little too late. There is no better time than now to get started, consult an attorney and put a proper estate plan in place.
Failing to consult a professional estate planning lawyer is a risky move especially if you have complicated assets or if you have doubts about your own ability to draft an estate plan. An experienced attorney can provide you with tax-planning strategies based on the particular needs and demands of your estate.
It’s best to work with an estate planning professional to make sure that all bases are covered. Talk to an attorney to learn more about avoiding the pitfalls that you may encounter in the complicated business of estate planning. Click the button below and schedule a call with our team to get started.
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