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Five Common Estate Planning Mistakes
- I don't have to worry about death taxes – my estate is too small to be affected.
Even if you won't owe federal estate tax, which currently applies only to estates above $3.5 million, your estate may still face state "death taxes" and probate costs. With proper planning, assets might be titled differently so that probate isn't necessary. A total of 24 states and the District of Columbia impose estate taxes (similar to the federal tax) or inheritance taxes. States that impose their own death taxes may impact estates of $2 million, $1 million or even less. Keep in mind that real estate you own in a different state may be taxable, even if your own state does not impose inheritance or estate taxes. Ask your advisers about the state death tax situation in any state where you own property. Note: States generally exempt charitable bequests from inheritance tax or provide charitable deductions against state estate tax.
- I don't need a will – everything I have is jointly owned with my wife/husband.
Married couples and others often own major assets in "joint names" or other survivor-take-all arrangements. Joint ownership, while convenient, is no substitute for a well-drafted will. It's true that jointly owned property usually passes automatically to the surviving joint owner. But what will happen to the property when the surviving joint owner dies? And who can predict who the survivor will be? Clearly, a will is necessary to carry out your wishes. Joint ownership can also make it difficult to reduce taxes for your estate and heirs and may frustrate the hopes and plans you have for the distribution of your assets. If the surviving joint owner dies without a will, state "intestacy" law will decide who receives what from your estate.
- I have established a revocable living trust but have not transferred any of my assets into the trust.
A major purpose of the revocable living trust is to avoid the delays and expenses that can occur during the administration of an estate ("probate") after a person dies. Assets that are titled in the name of a revocable living trust won't go through probate, but some people who set up living trusts never get around to actually transferring their real estate, investments and other assets into the trusts. Everything still goes through probate, and the trusts wind up being a waste of time and money.
- I haven't changed my will since I signed it in 1991.
Your will may be out of date, which can create problems down the road. You should review your will annually for any changes in your assets or family circumstances. You may need a codicil (amendment) or an entirely new will, for a variety of reasons:
- Newly married, widowed or divorced
- Birth of a child or grandchild
- Inherit significant assets
- Move to a different state
- Executor dies or moves away
- People named in your will have died
- Sell or give away assets mentioned in your will
- Heir develops special needs
- Changes in the values of your investments or real estate
- Provide for the American Red Cross and other charities in your estate plan.
- My IRA (or other retirement plan) names my estate as beneficiary, so amounts remaining in the account will be distributed according to my will.
IRAs and other retirement plans generally are subject to income taxes after death, payable by your estate or the heirs who receive distributions. However, if you designate beneficiaries under the account agreement, your beneficiaries can spread out any distributions – and income taxes – over their life expectancies, a strategy that advisers generally recommend. That strategy is not available if retirement account proceeds are simply paid to your estate.
We encourage you to contact our office at 1-800-797-8022, ext. 5, firstname.lastname@example.org or log on to www.redcrosslegacy.org if any of these ideas are of interest to you, or if you have already made a gift through your estate plan. News of bequest intentions is extremely helpful in our future planning and gives us the opportunity to thank you.