Top 10 Estate Planning Mistakes
Robertson Legal Group, LLC
34 Saravanos Drive, Unit A
Yorkville, Illinois 60560
TEN COMMON ESTATE PLANNING MISTAKES
YORKVILLE ESTATE PLANNING ATTORNEYS
- Titling property jointly with your children as a substitute for a will.
With a will or Revocable Living Trust (Trust), you make contingencies in case your initial beneficiaries listed are either disabled or deceased. Having a second or third contingent beneficiary is crucial because it helps to avoid probate court. Additionally, titling your personal residence jointly can result in partial loss of the capital gain exclusion if it is sold before your death or result in a gift tax (50% tax rate).
- Failing to plan for the possibility of children getting divorced or having problems with creditors.
Parents often regret having made outright gifts to their children when the child subsequently divorces and the ex-son or daughter-in-law is awarded an interest in the gifted property by a court, or when property is taken pursuant to a legal creditor judgment against the child. These problems can be reduced through Trusts because Trusts have a spendthrift provision, which prevents the inherited money being subject to a divorce or creditor of the surviving beneficiary.
- Underestimating Family Conflicts Caused by An Inheritance.
Any person setting up a will or Trust should strongly consider the family dynamics when considering who should be a Trustee and who should inherit their estate. For example, if A dies and has a surviving spouse, which is the result of a 2nd marriage and A has two children from a first marriage, this family will likely have a serious problem. If the estate is not properly structured, the 2nd husband and A’s kids from the first marriage will likely dispute who is entitled to plan the funeral, inherit from the estate, and whether the 2nd husband should continue living in the residence that A and the surviving spouse lived in together.
- Failing to plan for the possibility of a guardian for your children if they are under age 18.
Many families fail to plan who they will choose to be the guardian over their minor children. A couple factors should be considered: a) who is your first, second, and third choice for guardian over your minor children if you and your spouse are deceased; b) should one or two guardians manage the finances and parental responsibilities; c) what happens if your choice of guardian is divorced and unmarried; and d) what school district and lifestyle will your children have if you choose certain people as guardians.
- Failing to plan for children that you do not consider to be your children or grandchildren.
Families (especially high net worth) often ask an estate planning attorney to eliminate language in their wills or Trusts that state that they (person creating will or Trust) want to provide for any unborn or adopted children not listed in the will or Trust. Many professionals are concerned about illegitimate children or grandchildren claiming a right to a family inheritance that the family was unaware of.
- Underestimating the true value of your estate for Federal Estate Tax Purposes.
Many people are unaware that life insurance proceeds are includable in their taxable estates upon death. The estate tax unified credit is currently $2 million and if properly structured, an estate tax can be eliminated or greatly reduced with some simple planning techniques.
- Selling real estate without considering the benefits of “step up” in tax basis upon death.
For example, A owns two real estate properties and is 85 years of age. A is considering selling the property upon her death. If A sells the real estate properties upon her death, A may pay a substantial capital gain’s tax because of having a low tax basis in A’s real estate properties. If A does not sell the real estate properties and A deceases, A’s family gets a “step up” in tax basis in the real estate property which eliminates the capital gain’s tax on the real estate properties.
- Protecting loved ones from a substantial inheritance.
One benefit of a Trust is the creator of the Trust can put restrictions on use of a beneficiary’s use of Trust’s assets to protect a beneficiary from their inability to manage money, protect a beneficiary from immaturity, and guaranteeing that a beneficiary will not spend all their inheritance by selecting a Trustor that is good with managing money. For instance, one always should strongly consider how to protect their children and their children’s lifestyle such as choice of educational institutions if the guardian is irresponsible with money.
- Failing to plan for incapacity or disability.
Families should have appropriate powers of attorney for property and healthcare to appoint a guardian or conservator to act on their behalf if you become disabled or unable to make healthcare or financial decisions for yourself. For instance, if you became disabled today, would you be able to pay your bills or continue running your business. If you have business partners, would your business be able to withstand the absence of a business partner for a substantial amount of time without draining the resources of your business. Do you have an adequate buy/sell written partnership agreement and the proper funding vehicles to fund the buy/sell agreement in case of a disability or incapacity?
- Failing to review and update your estate plan every couple of years.
Law changes along with personal, family and business changes make it necessary to update your will or Trust. For a lot of families, a Trust is more appropriate than a will and seeking out an estate planning expert can prevent your family from conflicts and substantial legal fees and costs associated with probate court. A second opinion is always good because a lot of attorneys are not seasoned estate planning attorneys and fail to understand the complicated family conflicts and ever-changing estate tax laws. For example, have you had a baby, moved to a different state, accumulated additional assets, or been married or recently divorced? If you have had a substantial change in your family or personal life, you should strongly consider scheduling an appointment with an estate planning attorney.
CONTACT YOUR YORKVILLE ESTATE PLANNING AND LIVING TRUST ATTORNEYS TODAY AT 630-780-1034 or VIA EMAIL AT Sean@GatevilleLawFirm.com
We are a Yorkville and Kendall County Estate Planning Attorney focused on estate planning, living trust, powers of attorneys, and living trust planning in the Yorkville area such as Oswego, Plano, Aurora, Montgomery, Bristol, Newark, Plainfield, Joliet, Shorewood, Minooka, and Joliet. Call Sean at 630-780-1034.