It’s no secret that estate planning can be a difficult and time consuming process. That being said, it’s also necessary in many cases. The top three reasons that clients engage in estate planning are to avoid probate (59%), minimize discord among beneficiaries (57%), and protect children from mismanaging their inheritances (39%). However, when planning your estate, it’s critical to be aware of estate planning laws in order to handle your finances as efficiently as possible. Unfortunately, many people are unprepared and don’t have the help of experienced estate lawyers, so they end up making mistakes that are entirely preventable.
Here’s part one of our guide that will explore some of the most common mistakes to avoid when planning your estate.
Not reducing your estate tax using gifts.
One of the most common mistakes people make when planning their estate is to neglect giving gifts to save on estate taxes. The Internal Revenue Code states that gifts up to $14,000 per year per spouse is eligible to be excluded from estate taxes. Not taking advantage of this little known estate planning law means less money left in your estate for distribution. But more importantly, you can make a positive financial impact on an individual, business, or cause of your choice.
Neglecting to plan for disability.
As negative as it sounds, it’s reality; it’s important to remember that a long term or unexpected disability can sometimes have bigger repercussions regarding your financial and personal affairs. This can affect major financial and family-related decisions, so it may be necessary to appoint a power of attorney in addition to creating a living trust on your behalf.
Putting a child’s name on the deed.
It may seem well-intentioned, but putting your child’s name on the deed to your home can have some unforeseen consequences. It will be seen as a taxable gift, since it will exceed the $14,000 tax-free gift limit. Instead, make an estate plan that will pass on the home or value through the form of an inheritance.
Ultimately, being aware of these errors can help you make the best financial decisions when planning your estate. Keep an eye out for the next post, where we’ll address some more common mistakes about planning your estate.