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Big Mistakes in Estate Planning

Many people, who are in good financial shape, use poor judgment when it comes to their estate planning. Here are some of the estate planning mistakes that are frequently made.

  1. Not having a plan at all

    In a sense, everyone does have an estate plan; Kentucky and other state laws assure this by laws and statutes. It simply may not be the plan that you had in mind, or that your family would have preferred. Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died. These laws, called “intestacy laws” vary from state to state but, typically leave percentages of your assets to various family members. There is always a chance that these laws will accomplish what you would have intended, but why take a chance that this might happen. It is improbable that, by chance, your dispositive intentions as to who gets what and when will be fulfilled in intestate succession. Your will applies to the disposition of your “probate assets” – those assets NOT otherwise following a beneficiary or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation is of your 401(k) or IRA will override either your will or the laws of intestacy. Even a simple estate plan, that is well thought out and results from the identification of your personal objectives, will be much more successful than nothing at all.

  2. Online or “do it yourself” rather than an estate planning professional

    There has been a noticeable increase in the number of people who will look to the Internet to prepare their own wills and trusts. There are dozens of websites that will profess to offer you just the right discounted estate planning documents. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster. Estate planning documents should represent a well thought out financial and estate plan. Furthermore, those formalities for a validly written and executed document will vary from state to state. Internet sites can provide you will documents but no actual advice that fits your specific financial and personal areas. What happens when the laws change? Does the document create an unnecessary tax if the state and federal tax laws diverge substantially?

  3. Failure to review beneficiary designations and titling of assets

    One of the most basic and most overlooked items on every estate planning checklist is the review of beneficiary designations and the property titling of accounts. Many people will often let beneficiary designations and assets titling determine their estate plans for them, contrary to their intentions. Regardless of what your well-developed wills and trusts say, your beneficiary designations and the title of your assets will control the distribution of those assets. Many states have enacted legislation to convert even otherwise ordinary brokerage accounts into accounts with beneficiary designations via Payable/Transfer Upon Death Registrations. All of these beneficiary designations control who gets the asset at your death. An account that is held jointly with right of survivorship will pass automatically to the survivor of the joint owners. Why does this matter? Assets can flow to the wrong people due to old, wrong and/or out-of-date designations.

  4. Maximizing annual gifts

    Gifting is, probably, the best way to minimize future estate taxes. The entire universe of exemptions and deductions available for the reduction of estate taxes consist of: the lifetime exemption ($5.4 million in 2017), the marital deduction (for gifts to citizen spouses during life or at death), the gift and estate tax charitable deduction, annual exclusion gifts ($14,000 in 2017) and direct transfers (not to be treated as gifts) for education (tuition) and medical care (both theoretically unlimited). For the wealthy, maximizing all of these is good planning. Making annual exclusion gifts every year to as many family members (this includes anyone close to you) as good planning (given your financial situation) is good planning. Over the long run, you can transfer significant sums of money out of your estate along with any appreciation, thereby reducing state taxes.

  5. Leaving assets outright to adult children

    There has been a growing thought for wealthy families that assets should remain in trust, even for adult children, for as long as possible for the asset protection and other benefits that a trust can offer. For a wealthy couple with adult children, the question may no longer be a one of legal capacity or maturity level (although those issues may still remain). The bigger questions may become: who should really benefit from the fruits of my labor and how do I protect those assets from creditors, potential creditors and ex-spouses. For as long as trusts have been in existence, the idea of controlling assets for as long as allowed with a set of instructions has been considered acceptable and often sought after planning. Whether or not to leave assets in trust for adult children depends on many factors; not the least of which is personal preference. However, in our litigious society of high divorce rates, leaving some assets in trust with fairly liberal access is certainly consideration.