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Estate planning errors: beneficiary designations, life insurance, annual gifts, taxes

| Apr 27, 2012 | Estate Planning |

In our last post, we began speaking about major mistakes people sometimes make in their estate planning. We’ve already mentioned several mistakes-failure to plan, doing estate planning without professional help, and failing to review one’s beneficiary designations. In this post, we’ll look at several other specific mistakes sometimes made in estate plans.

Another mistake that sometimes comes up is the failure to plan for the gift and estate tax consequences of life insurance. Life insurance policies which are owned by the insured at death are included in the insured’s estate, and are subject to estate and gift taxes. But bu transferring all “incidence of ownership” of such policies during their lifetime, the insured can remove the policies out of their estate and avoid taxes. It is important to realize, though, that there are a variety of ways to structure ownership and control of a life insurance policy, and one should think through this issue carefully before making a fully informed decision.

Failure to maximize annual gifts, where it makes sense to do so, is another common mistake. Making yearly gifts is one of the most effective ways to minimize estate taxes, particularly for the wealthy. A number of gifting techniques are possible, but everybody will have slightly different needs.

Until the end of 2012, the combined estate and gift tax exemption amount is $5,120,000 per individual. This unparalleled exemption amount allows wealthy people to give away much of their wealth until the end of 2012. Those for whom it makes sense to take advantage of the exemption amount would be mistaken not to do so.

A final potential mistake to mention is leaving assets outright to adult children. For some families this may make sense, but other families may want to consider whether it is better to let assets left to adult children remain in trust for as long as possible. There are various benefits to doing so, including asset protection. For instance, do you want your sons-in-law or your daughters-in-law having access to your wealth? Not everybody will have the same philosophy on the issue, but it is well worth speaking to an attorney about.

These are only some of the mistakes that can come up in estate planning. To ensure the best possible estate plan for yourself, it is important to consult a qualified attorney and thoroughly discuss one’s family and financial situation and goals. Based on this information, an estate planning attorney will be able to craft an effective and thorough plan.

Source: Forbes, “7 Major Errors In Estate Planning,” Rob Clarfeld, April 25, 2012.

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