Common Estate Planning Errors

I was appointed the finance correspondent for Senior Life Advisor, an online magazine for investors near or in retirement. The articles for Senior Life Advisor were designed to offer actionable information as well as items of interest about economics, investing and personal finance.

You want the best for your heirs.  But assuming they will be better off simply because they have more money can keep you from optimizing the impact of their inheritance.  

Passing Along Uneven Tax Liabilities 

If you pass along assets inside an IRA, remember you pass along the tax liability that goes with it.  To the degree you have heirs in high tax brackets and low brackets means they will be left with different amounts after taxes, and that’s what matters, right?  Consider how to divvy your assets among tax deferred and taxable accounts so that they each receive the same after tax amount.  

Passing Along A Vacation Home

This can be a good idea, especially if a vacation home is transferred with a Qualified Personal Residence Trust.  But it can be a bad idea if your beneficiaries are unable or unwilling to take on the responsibility.  Worse, what if there’s disagreement among the beneficiaries about whether or not to keep the house?  This one is easy to fix: Talk to your beneficiaries about your intentions for the vacation home and see what they say. 

Passing Along Illiquid Assets

Artwork, farmland, antiques, vintage cars among other items, when passed to heirs are likely to be sold at firesale prices.  Better they are sold ahead of time by the person who understands their true value and how to realize it.  

Keeping Insurance Proceeds In a Trust

Many people set up an Irrevocable Life Insurance Trust (ILIT), to keep insurance proceeds out of their estate.  When the federal estate tax exemption was $600,000 — the amount after which federal estate taxes were payable — this made sense.  Now that the exemption is over $11 million, maybe and ILIT makes sense, and maybe it does not.  But now this the time to figure this out.  


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