|
|
________________________________________________ Estate Errors
1.
No Will Without a will, if you are married and have no children, the surviving
spouse will take what's left over, but without tax and creditor
protection planning. If you are married and have minor children, you probably want to
provide for your spouse, trusting him or her to take care of your
children while they are minors. If your children are adults, you
may want to ensure that they receive something on your death, even
if you die before your spouse, or you may want to restrict what
they receive even if your are the last spouse to die. Without a
will, some assets likely will pass to your children in a way that
doesn't match your desires. The only way to achieve your wishes is to put them in writing.
A will allows you to leave your property to whom you wish with few
restrictions, except that you can't condition a bequest on something
that is contrary to public policy. A will also allows you to defer and to save federal estate taxes.
The unified gift and estate tax credit allows each individual to
give away during life or bequeath at death $625,000 free of gift
and estate taxes (the exemption equivalent, which will increase
gradually under the Taxpayer Relief Act of 1997 until it reaches
$1 million in 2006). Each individual can also give or bequeath to his or her U.S. citizen
spouse unlimited amounts gift- and estate-tax-free without dipping
into the unified credit. With proper estate planning documents and
allocation of assets, you can ensure that both of your exemption
equivalents ($1.25 million total in 1998) pass to your heirs free
of transfer tax. If you have your entire estate pass to your spouse
outright, you unnecessarily will pay estate taxes on $625,000 (more
as the exemption equivalent increases). To make use of both spouses' unified credits, we typically create
a credit shelter trust funded with the exemption equivalent to benefit
the surviving spouse. With proper drafting, the surviving spouse
can be the trustee, yet trust assets will not be taxed in his or
her estate. Not making proper use of the exemption equivalent can also come
from outdated wills. Wills in which each spouse leaves all to the
other may have been fine earlier in your life when you had few assets,
but are not sufficient after you have accumulated a sizable amount
of wealth. An alternative to a will is a living trust, which offers some advantages.
Please call us if you would like to learn more about living trusts.
We can help you determine whether a will or living trust will better
met your needs. 2.
Too Much Joint Tenancy Property Your will only operates on property that you own at death that
does not pass automatically on death by virtue of how title is held
or a beneficiary designation. Since joint tenancy property passes
to the surviving joint tenant by operation of law, your will cannot
direct who is to receive property held in joint tenancy or how such
property is to be held. The property belongs to the surviving joint
tenant, free from restrictions. Joint tenancy property also cannot be used to fund a credit shelter
trust because it automatically becomes the property of the survivor.
Too often, too much joint tenancy property defeats an otherwise
good estate plan. This is why we recommend that each spouse have
assets at least equal to the exemption equivalent in his or her
own name. 3.
Not Keeping Track of Assets Assets discovered after the close of probate require its reopening
and may result in additional estate taxes plus interest and penalties.
Probate is the process by which title to property is transferred
to heirs when the property itself does not have an automatic means
of transferring title (such as joint tenancy property, property
held in trust and life insurance with a designated beneficiary).
If your heirs, for example, discover some U.S. Savings Bonds years
after the close of probate, the government may insist on reopening
it to get the bonds transferred. Maintain a list of your assets at all times. If you don't want the list available to others during your life, leave it with your attorney or accountant, or in your safe deposit box. Also, keep the list current. It should contain the nature of the assets and their locations. Destroy outdated passbooks and lapsed insurance policies, or at least label them clearly as obsolete, so your heirs don't waste time pursuing nonexistent assets. 4.
Not Considering Liquidity Even if you don't own a business, your estate should be treated
as one. It will need liquidity to operate. First, your family will
need income. Second, your estate will have expenses: estate, income
and excise taxes, debts, and professional fees and other estate
administration costs. An estate generally requires a great deal of liquidity to be successful
-- that is, to carry out your wishes and the directions of the estate
plan. Ensure enough liquidity to avoid forced or untimely sale of
estate assets. Include a cash-needs budget in your estate plan as well as a game
plan to achieve it. Consider the need for additional life insurance.
The phrase "a person was underinsured" often means that
the potential cash needs of the estate were not addressed. |
|
©
Copyright 2001 Fahlman & Olson. All rights reserved.
LEGAL NOTICE
|