To reach financial security, there are many hurdles that have to be successfully negotiated. Additionally, life often throws a number of unexpected items into our path. To add to the treachery by making common mistakes can add insult to injury and is really unnecessary.
In the space of a few paragraphs, I cannot go into the same depth we do in our program “10 Common Financial Mistakes,” but I would like to touch on a few of them here. We have grouped them into three major categories: Estate Planning, Financial Planning, and Tax. In this issue, I will cover the estate planning mistakes.
First, we see most often out-dated estate documents. It is not uncommon for someone to come in with Wills 15 to 20 years old! Others do not have Wills or Trusts at all. Not only have their circumstances changed, but so has the tax law. Estate documents should be reviewed approximately every three years and after every major change in the tax code for estates.
Another common mistake in estate planning is for a couple to be unaware of their estate size, and thus the impact estate taxes will have on the assets they have accumulated over a lifetime. The recent market decline may have resolved this concern for many, at least for now. While current law repeals the estate tax in 2010, this has occurred before only to be brought back to life when revenue was needed by our government. And, do not be surprised if the States raise their estate tax rates once the Federal taxes are repealed. Many couples use what we refer to as “I Love You Wills.” This is where each spouse leaves everything to the surviving spouse or if they are both gone, the estate goes to the children. While this is simple and straight forward, this type of planning fails to utilize the Federal Tax Credit for the first death, and thus the credit for the first to die is lost forever. Depending upon the size of the estate, the credit may be worth in excess of $300,000.
The failure to utilize the estate tax credit leads us to the third common mistake and that is the wrong beneficiary receives a substantial portion of your estate. While there may be an actual error in the documents, most often Uncle Sam becomes far too much of a beneficiary of the estate. Frequent reviews and a little planning may reduce Uncle Sam’s share substantially.
The last of the estate planning mistakes that we discuss pertains to how we hold title to property. Many individuals and couples spend a great deal of money preparing the documents only to find out when it is too late, that their estate plan did not work. Most often the cause can be traced back to how the property was titled. Many assets we own, unless additional steps are taken, will not be subject to the estate planning documents. This is why the document preparation is the first step, not the last. To prevent this mistake from occurring, we offer financial fire drills to our clients where we do a test run to make sure the assets are subject to the instructions of the Will or Trust. Failure to take this type of step every few years may result in paying Uncle Sam too much money or assets not going to your intended heirs.
In the next issue, we will discuss the Financial Planning Mistakes that may occur. If we can assist you in discovering or correcting any mistakes in your Estate Plan, please contact our office.
For help with managing investment assets contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other tools all available for free.