Common Estate Planning Errors

You want the best for your heirs, but assuming they will be better off simply because they have more money can prevent you from optimizing the impact of your estate and their inheritance.

Uneven Tax Liabilities

If you pass along assets inside an IRA, you also pass along the tax liability that goes with it. Having heirs in high and low tax 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 each heir receives the same after tax amount.

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Passing Along a Vacation Home

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

Illiquid Assets

Items like artwork, farmland, antiques, and vintage cars, when passed to heirs, are likely to be sold at fire sale prices. Better to sell them ahead of time, since you understand their true value.

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 an ILIT makes sense… or maybe it doesn’t. Either way, now is the time to figure this out.