What Missteps Can You Avoid When Planning Your Estate?
Planning an estate is not simply guided by common sense. There are several mistakes well-intentioned people make, thinking they are making the smartest moves. Here are four typical mistakes in estate planning.
4 Mistakes To Avoid When Planning Your Estate
Mistake #1: The child’s name is on the deed
By putting your child’s name on the deed, you are giving them a huge tax burden. Any gift more than $14,000 per spouse is taxable – and your home is likely worth more than $14,000. The smarter move is to craft an estate plan that uses a trust, or inheritance to pass on the home.
Mistake #2: The life insurance policies have not been placed into a trust
Your policy could also subject to a huge estate tax, and most of the proceeds from that policy could go directly to the Internal Revenue Service. If you create a life insurance trust to own your policies, then your spouse will not be taxed. It will also mean that your spouse or children can receive insurance proceeds right away, rather than waiting for several months.
Mistake #3: No plans are in place for disability
A long-term disability can often be far more expensive than a death. The same decisions – who will raise your child, who will handle your finances – must be made if you become incapacitated. A power of attorney and/or living trust will help you make your intentions clear, and legally enforceable.
Mistake #4: The federal exemption was not used
There is a federal exemption for each spouse, put in place to avoid estate taxes. That exemption was set at just over $11 million for 2018. Exemption trusts are in place so that, if one spouse dies, some of the estate can be protected in the trust to reduce the tax burden for the other spouse. It is an easy mistake to make, but you definitely want to use this federal exemption.