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.

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.

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.

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

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.

Most Popular

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space
Budgeting

Planning to Sell Your Home in Retirement? Downsize Costs Along With Space

In this hot real estate market, consider the costs of buying and selling a house along with the expenses associated with your new digs.
November 13, 2020
What Biden Will Do: 24 Policy Plays to Expect From the Next Administration
Politics

What Biden Will Do: 24 Policy Plays to Expect From the Next Administration

The Kiplinger Letter forecasts President-Elect Joe Biden’s biggest priorities -- and the likelihood of progress on them.
November 19, 2020
The 13 Best Healthcare Stocks to Buy for 2021
Kiplinger's Investing Outlook

The 13 Best Healthcare Stocks to Buy for 2021

Most of the best healthcare stocks for 2021 will have some sort of ties to COVID, whether it's producing a vaccine or cure, or benefiting from the vir…
November 20, 2020

Recommended

Bad News for Super Savers
Financial Planning

Bad News for Super Savers

Low inflation keeps thresholds on retirement savings plans in check.
November 25, 2020
Your Guide to Roth Conversions
Tax Breaks

Your Guide to Roth Conversions

Like marriage, converting a traditional IRA to a Roth is not a step that should be taken lightly.
November 24, 2020
How to Help Your Family Wealth Last for Generations
estate planning

How to Help Your Family Wealth Last for Generations

Creating generational wealth takes careful planning and thoughtful sharing of intentions, plus the right investment vehicle.
November 24, 2020
10 States with the Highest Gas Taxes
taxes

10 States with the Highest Gas Taxes

COVID-19 has made us appreciate driving our cars more, but filling up the tank will cost you more in these state.
November 23, 2020