Advertisement
retirement

Some of the Biggest Estate-Planning Mistakes People Make

Will your legacy be a benefit or a burden to your loved ones? It depends on how well you've planned.

There are some things we just don’t like to think about, much less speak about. The universal truth is we are all going to pass away one day. The legacy you leave can either simplify the process of dealing with your personal and financial property, or it can be a worrisome burden for those you leave behind.

Advertisement - Article continues below

Legacy planning is as important as your final wishes. So, as much as you avoid the topic, it can’t be — and shouldn’t be — ignored.

When discussing this subject, I like to point out to people that it is often the smallest things that can come back to bite you. I’m reminded of the proverb that says, “For want of a nail, the kingdom was lost.”

So let’s take a look at what you should discuss with a qualified attorney to help make sure your kingdom — and your legacy — isn’t lost.

There are several common mistakes people can make when planning — or not planning — for what will happen with their estates when they die. A few of those mistakes include:

Lack of a see-through provision on a trust.

This can prove very costly. For example, consider a couple who has a $1 million Individual Retirement Account (“IRA”) and the beneficiary of the IRA is a trust. If there is no see-through provision on the trust, the couple’s estate could potentially owe several hundred thousand dollars in taxes when the IRA is passed to beneficiaries due to the higher tax rates trusts are often subject to. In certain circumstances, a trust may be an appropriate beneficiary for an IRA.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

A “see-through trust” refers to a trust that meets specific legal requirements and serves as the named beneficiary of an IRA. In this scenario, The IRS will “see through” the trust and treat the trust’s beneficiaries as if they were the IRA’s direct beneficiaries. The beneficiaries’ life expectancies will then be used to determine the IRA’s required minimum distributions. Additionally, a see-through provision allows these distributions to be taxed at the individual beneficiary’s tax rate rather than at the trust’s tax rate.

Oftentimes, a trust’s tax rate is higher than an individual’s. Therefore, a see-through provision could help prevent a large tax bill when the owner of the IRA dies, depending on the individual beneficiary’s tax situation.

A blank or incomplete Schedule.

Schedules are attachments to the trust document that contain important details concerning the trust (most commonly a Schedule A). For example, most trusts have a schedule that is the inventory sheet of the trust, and it typically details what assets you have transferred into the trust. As such, it’s important to make sure all schedules are complete and accurate — it shouldn’t be blank! It is important to confirm with your attorney that your trust actually owns the assets you intend for it to own.

Advertisement - Article continues below

If it’s not clear what assets the trust owns on the statement, you should be concerned and meet with an attorney who can review your trust to help ensure your wishes are accurately reflected.

POD/TOD.

POD means “payable on death.” TOD stands for “transfer on death.” These designations allow the beneficiary to receive assets without going through probate. Does every bank account, including all your checking, money market, savings and CD accounts, have POD and TOD instructions on them? Probate can be an expensive process. Laws governing attorney fees for probate are decided by individual states and can vary. For example, consider a savings account with $200,000. In Florida, attorney fees to probate this account could be as high as 3%, or $6,000. Having a POD or TOD on this account could help save on these administrative expenses.

Having too many accounts.

The FDIC places a limit of $250,000 per depositor, per bank on the amount that it will insure. As such, you may consider consolidating some of your bank accounts if you have more than you actually need to ensure you are protected. Otherwise, you might overcomplicate your estate.

Leaving no inventory of assets.

So where is everything? Even if you have been meticulous about having all the right documents, it does no one any good if they can’t find them after you die. So leave your loved ones a checklist to tell them where they can find your birth certificate, Social Security card, marriage license, pre-nuptial agreement, military records, will, burial instructions, cemetery plot deed or cremation agreement, bank and credit documents, mortgage papers, personal financial documents, and safe deposit box and keys.

Your legacy is the last impression you leave behind. The last thing families want to do is leave their children or beneficiaries 1,000 puzzle pieces scattered all over the floor. A legacy is not a 1,000-piece puzzle scattered to the wind but a picture worthy to be framed.

Rozel Swain contributed to this article.

Investment advisory services offered through AE Wealth Management LLC, (AEWM). AEWM and SWAN Capital are not affiliated entities. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. AW04172438

Advertisement

About the Author

Andrew McNair, Investment Adviser

President, SWAN Capital

Andrew McNair is the president, Investment Adviser Representative and Insurance Professional of SWAN Capital, which he founded in 2012. In the same year, he established the Veteran Benefit Project, an organization that helps veterans qualify for VA benefits. He specializes in the fields of retirement income, long-term-care, wealth preservation and has a strategic partnership with an attorney for estate planning services. He has helped inform thousands of individuals about planning for retirement.

Advertisement

Most Popular

18 Things You Can't Return to Amazon
Smart Buying

18 Things You Can't Return to Amazon

Before tossing these items into your virtual shopping cart, be sure to read Amazon's return policy first.
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Insurance for Long-Term Care at Home
retirement

Insurance for Long-Term Care at Home

In the wake of COVID-wracked nursing homes, increasingly more people are looking at options to age in place with long-term care insurance.
September 17, 2020

Recommended

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Now’s the Time for Estate Tax Planning
Financial Planning

Now’s the Time for Estate Tax Planning

There's a wealth of opportunity with IRS interest rates at an all-time low and the federal estate and gift tax exemption at an historic high.
September 18, 2020
Most-Overlooked Tax Breaks for the Newly Divorced
tax deductions

Most-Overlooked Tax Breaks for the Newly Divorced

Filing taxes after a divorce can add yet another problem to an already long list of challenges. But here are some tips to make your return to single l…
September 18, 2020
A Step-by-Step Guide to Being an Estate Executor
retirement

A Step-by-Step Guide to Being an Estate Executor

Whether you’re planning ahead for your own heirs or have been asked to serve as an executor of an estate for someone else, it pays to understand what …
September 17, 2020