Top Ten Fatal Estate Planning Mistakes
 Potholes are just part of life on the road. Some potholes, however, can be life
threatening. Fortunately, however, even these deadly potholes can be avoided once you know where they are. So it is with estate planning mistakes. In this article we will warn you about ten
fatal estate planning mistakes before it is too late. [Note: The danger posed by any given mistake will vary depending on your unique circumstances, this list is by no means
all-inclusive.]
No Plan
Probably the most fatal mistake is the failure to plan. Period. Statistically, 70
percent of Americans have no plan at all. Why? Good, old-fashioned procrastination. Consider it human nature. Who relishes facing the possibility of their future incapacity and the certainty of
their own death? Nevertheless, it is a matter of personal responsibility. You are the only one who can make it a top priority to protect yourself, your loved ones and your hard-earned
assets. Take time to carefully think through, implement and then update your estate plan. You and your loved ones will be glad you did.
No Incapacity Planning
Too many people regard estate planning as merely an after-death distribution program
for their assets. While this is an important component of proper planning, a comprehensive plan begins with planning for your own incapacity. The law requires every adult American to make their
own personal, health care and financial decisions. You also are charged with appointing an agent to make decisions for you in the event of your incapacity. However, you must have legal
"capacity" in order to make this appointment. Otherwise, a probate judge, who may not know you or your wishes, will appoint someone for you. This process may invade your privacy by making
your personal and financial circumstances a matter of public record.
No Back-Up Parents
Silver and gold aside, most parents consider their children to be their most valuable assets. These parents often devote considerable time and treasure
to providing an education, social and athletic activities, and religious training for their children. Incredibly, however, these same parents may fail to legally appoint guardians (i.e., back-up
parents) for their minor children in the event both parents die. Who would you appoint as guardians to take your place and rear your minor children to adulthood? What special instructions
would you give the guardians regarding their upbringing? By the way, listing the guardians on a cocktail napkin in the airport lounge will not work. You must legally appoint the guardians in
your Last Will and Testament before tragedy strikes.
No Inheritance Protection
No one values a dollar like the person who earned it. If you do not incorporate inheritance protection into your estate planning, your hard-earned assets
could be squandered by your surviving spouse's new spouse, your children (or grandchildren), or lost to their divorces, lawsuits or bankruptcies. Enough said.
No Basic Estate Tax Planning
A married couple may lawfully protect up to $4 million* of their assets from federal estate taxes through proper estate planning. However, if your plan
includes the joint ownership of assets between spouses, with reciprocal beneficiary designations and simple Sweetheart Wills, then you likely are shortchanging your loved ones and
unnecessarily enriching the IRS. In fact, on an estate of $4 million, the taxes could exceed well more than $800,000.
* Note: The future of this tax exemption amount is uncertain under current federal tax law and many states are imposing their own estate taxes, independent of any
federal estate taxes. Accordingly, careful monitoring of the economic, political and legal climate is required.
No Estate Tax Planning For Life Insurance
Life insurance is a fundamental financial tool for most Americans. Whether intended to help support a surviving spouse and minor children, provide cash
liquidity to satisfy estate taxes, or for myriad other important uses, most Americans do not own enough life insurance or do not own their life insurance properly. One of the greatest tax myths
is that life insurance death benefits are tax-free. While a lump sum payment of the death benefit may be income tax-free when received by the beneficiary, the entire value of the
death benefit is part of the policy owner's estate for estate tax purposes. This is true if the policy owner held any incidents of ownership (e.g., access to any cash value or even the
authority to change beneficiaries) at the time of their death or transferred ownership of the policy within three years of their death. You may structure your life insurance to avoid estate
taxes and still fulfill your objectives through a properly structured and coordinated estate plan. Otherwise, you unintentionally may have made the IRS beneficiary of nearly half of your life
insurance.
 No Probate Avoidance Planning For Multi-State Real Estate
Real estate is subject to probate in the state in which it is located. Accordingly, if you own real estate outside your home state, then such real estate may
go through probate in that state before being transferred to your loved ones. Probate, whether in your home state or in another state may be avoided if you make appropriate legal plans in
advance. Note: Probate is more burdensome in some states than in others.
No Income Or Estate Tax Planning For Retirement Plans
Due to the unprecedented performance of the stock market over the past several decades and the government's encouragement of employer-sponsored retirement
plans, much of the private, individual wealth in America is in qualified retirement plans. Without careful coordination between one's financial plan and one's estate plan, more than 50
percent of a married couple's retirement monies may go to the IRS instead of their loved ones. With proper coordination between the two, the impact of taxes on these unique assets can be
substantially minimized and perhaps even replaced (through special life insurance arrangements).
No Business Succession Planning
Statistically, only 30 percent of family businesses survive from the founding generation to the next. The success rate thereafter is even more dismal. Just
like individuals, business owners fail to make plans, have the wrong plan, or even an outdated plan for the eventual transfer of their business. A comprehensive estate plan should incorporate
planning for the succession of the business, especially when it is the major family asset. For example, if some children are active in the business and others are not, how do you treat
everyone equally (or at least fairly) when you are gone? Or, if the business is to be sold to other shareholders, key employees or a third-party purchaser, how do you structure the sale
to protect your loved ones when you are gone? Will there be sufficient cash liquidity in your estate to pay any death taxes due or will illiquid assets be sold to raise the cash needed?
No Tax-Savvy Lifetime Giving Program
One overlooked and therefore under-utilized opportunity under the tax code is the annual gift exclusion. This exclusion allows you to give up
to $12,000 each year to as many individuals as you desire without incurring gift taxes on the transfers. For estates already subject to potential federal estate taxes at rates exceeding 40
percent this technique not only removes the gifted asset's value from the donor's estate valuation, but also any future appreciation on the asset.
Note: Competent professional advice should be sought before making a gift of appreciated property because of special capital gains treatment such assets receive
upon the death of the owner. In addition, it may be prudent to consider using all or part of your $1 million lifetime gift exemption, sooner rather than later.
Conclusion
Like deadly potholes, fatal estate planning mistakes can be avoided. We have reviewed ten fatal estate planning potholes that can destroy
your plans for yourself, your loved ones and your hard-earned assets. To safely navigate them make sure you seek competent legal counsel.
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