Press release written while Assistant Editor for Your Money magazine, published by Consumers Digest
CONTACT: Dennis Fertig/Editor-in-Chief, YOUR MONEY
FOR RELEASE: October 1, 1998
10 DANGEROUS ESTATE-PLANNING MISTAKES
CHICAGO, October 1—Not surprisingly, many older—and not so old—people don’t want to talk about estate planning. It’s a difficult topic, and like any comprehensive financial plan, estate planning can be a complex process. As such, it’s easy to make mistakes. Just one bad decision in an otherwise good estate plan can seriously harm a family. For its October/November 1998 issue, YOUR MONEY examined 10 common mistakes that are made in estate plans. Avoiding these mistakes and planning today will bring people greater peace of mind now and to their survivors after they’re gone. Here are some of the painful and avoidable errors YOUR MONEY warns about:
Not Accounting for Everything You Own. The first step in estate planning is to track all of the assets a person owns. An individual should sit down and calculate all of his or her assets, making a record of everything in one place. After a thorough accounting of all property, it’s necessary to determine how each asset will be transferred to heirs. Almost all assets will be transferred in one of three ways: by contract, by operation of law, or by will or trust. Planners should note that certain assets, such as IRAs and insurance, will be paid to their designated beneficiaries, even if contrary to the will.
Ignoring Other Estate-Planning Documents. Besides the conventional will, there are three other essential estate-planning documents: a durable power of attorney, a living will, and a durable power of attorney for health care. While each of these has a specific function, all basically provide instructions for handling a person’s affairs or medical care should he or she be incapacitated and unable to act on his or her own.
Creating a Trust When You Don’t Need One. There are many advantages to using a trust with an estate. However, smaller estates usually don’t need one because it can tie families into knots for generations without adding a significant financial advantage. If individuals decide to create a trust for their assets, they must remember to fund it. People often create trusts but don’t transfer their assets into them, fearing a loss of control. An unfunded trust causes an estate to go through probate, and avoiding probate was one of the biggest reasons the trust was created in the first place.
Misusing a Revocable Trust. Revocable living trusts are more frequently being used to avoid or reduce taxes and as a substitute for a will. But the big problem is people’s expectations of avoiding probate with such a trust. The only way to do this is to place all of a person’s assets in one. For example, one bank account still in existence with the deceased’s name on it will force his or her heirs to go through probate.
Not Keeping Up With Your Assets/Not Keeping Up With the Annual Exemption. Reviewing one’s estate plan whenever there’s a change in family structure, assets, or the tax laws is important. Assets can quickly outgrow the parameters outlined in an estate plan, and the annual federal estate-tax exemption amount changes every year, so building flexibility into documents will help obtain the maximum financial advantage.
Christine Verdi wrote this article for YOUR MONEY.
YOUR MONEY is a Consumers Digest Inc. publication.
