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In order to ensure that your estate plan is sound, it is important to avoid some common mistakes:

Mistake: Assuming that estate planning is only appropriate for the very wealthy. Although estate taxes generally won’t affect estates with less than $1,000,000 of assets (valued at fair market value), there are other reasons to consider estate planning. If you have minor children, you need to make provisions for guardians and to provide for their support in the event of your death. Individuals who are involved in second marriages need to make special arrangements to ensure that children from a first marriage are protected.

Mistake: Placing too much reliance on the unlimited marital deduction. By leaving all of your assets to your spouse, you forfeit the use of your $1,000,000 estate and gift tax exclusion, compounding the problem of estate taxes when your spouse dies. For estates in excess of $2,000,000, full use of each spouse’s $1,000,000 exclusion will save the heirs $345,800 in estate taxes.

Mistake: Believing that joint ownership of property eliminates the need for more formal estate planning. Although joint ownership of assets can simplify estate planning, this may not be the most appropriate or cost-effective way to distribute your assets.

Mistake: Waiting until death to use the $1,000,000 estate and gift tax exclusion. The $1,000,000 exclusion can be used to make gifts in excess of $10,000 per year during your lifetime. It may make sense to gift an appreciating asset to your heirs during your lifetime to remove all future appreciation from your estate.

Mistake: Not using the annual gift tax exclusion of $10,000 ($20,000 with spouse) per donee. Over a number of years, an annual gifting program can remove a substantial portion of your estate from estate taxes. In addition, any income generated by the gifted assets becomes taxable income to the donees.

Mistake: Believing that a revocable living trust will save estate taxes. Although living trusts can provide substantial estate planning benefits, such as removing assets from probate and preserving the use of the $1,000,000 estate and gift tax exclusion, they have no impact on estate taxes.

Mistake: Not sheltering life insurance proceeds from estate taxes if your total estate, including those proceeds, will exceed $2,000,000. Although the proceeds will be free from income taxes, they will only be free from estate taxes if you set up an irrevocable trust or make your heirs the owners of the policy. Specific tax guidelines must be followed to ensure the property tax treatment of the proceeds.

Mistake: Not updating beneficiaries. Beneficiaries can be named for many assets, including life insurance policies, retirement plans, brokerage accounts, and bank accounts. Review these beneficiaries after major changes, such as marriage, death, or the birth of a child.

Mistake: Relying on the marital deduction for a spouse who is a U.S. resident, not a U.S. citizen. The unlimited marital deduction is not available for spouses who are not U.S. citizens, unless a special kind of trust is established. Annual gifts of $100,000 may be made tax-free to spouses who are not U.S. citizens.

Any one of these mistakes can cost your heirs a significant amount of money. Feel free to call if you’d like to discuss your estate planning needs.


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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright © 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017