Balancing Act

Thinking about your own mortality is a tough subject. Many of us either keep putting it off or if we did put together an estate plan, we simply fail to review it from time to time.

The death of a celebrity certainly highlights some of the problems that family and loved ones encounter where no estate plan exists. Anna Nicole Smith’s recent death is a bitter reminder of what happens when everything is left to chance and the estate plan is incomplete.

I hear your grumbling to yourself that her situation is different but the truth is that while her estate may have greater networth, the lessons should be the same. So pay attention, this applies to you too.

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The following are some of the most common estate planning mistakes that we encounter.

1. Avoidance/Procrastination
Most people just simply steer clear of the topic. They are either too busy or simply do not want to think about their estate plan. We agree it is not necessarily a fun topic but you do want to make sure that your final wishes are carried out correctly, don’t you?

If you fail to take control of the situation by having the proper estate plan in place, you are basically asking the court system to make those decisions for you. That is right; if you do not make the tough decisions to make sure that your affairs are tended to at the time of your passing or in case you become incapacitated, then the court will do it for you.

Don’t do this to yourself or your family. Take action and have a will and/or a living trust created to make sure your wishes are realized.

2. Life Insurance
Many of us have life insurance to provide immediate funds to our loved ones at the time of our death. While life insurance proceeds are not subject to income tax, they may be included as part of the estate if the insured is the owner of the policy. Life insurance can increase the overall value of the estate and push the estate value beyond the federal exemption allowed at the time of death. Depending on the amount of life insurance this can cost the estate and the heirs a great deal of money.

Worst of all this is completely avoidable. Consider establishing an Irrevocable Life Insurance Trust. ILIT’s are trust vehicles that are established to own life insurance policies. Set up correctly, an ILIT can save your estate and your beneficiaries money.

3. Named Beneficiaries
Huge mistake that can easily be fixed. I can’t begin to tell you how many times we see clients that either failed to name a beneficiary on their retirement plan or thier brokerage accounts.

The problem is that accounts that do not have a specific beneficiary come back into your estate and become subject to probate. This can frustrate your intentions and interrupt the cash flow needed by the intended recipient. For IRA accounts, named beneficiaries can take distributions over their life expectancy instead of in a lump sum. This can save a fortune in taxes owed by the beneficiary.

Take the time to review your accounts every year and designate beneficiaries and contingent beneficiaries to make sure this problem does not occur.

4. Estate Planning is not just for the dead
A good estate plan not only creates provisions for distributing your estate assets when you pass on but also provides for the ability for someone to act on your behalf if you become incapacitated.

Each person has different needs but having a Power of Attorney and Health Care Directives are important to making sure that your needs and desires are being met if you are unable to care for yourself. Think of this as your living backup plan to ensure you are protected and cared for when you are unable to this for yourself.

5. Thinking of your estate plan as complete
Estate plans are a dynamic part of your life. As you experience new life changing events, so should you take a fresh look at your estate plan. The birth of child, a wedding, a divorce, the purchase of a home or investment; all of these life events require you to review your estate plan to ensure that your wishes are carried out.

Estate plans, like most plans, are really living documents that require attention. While you may not have an estate that is worth millions it is just as important that you take the time and effort to make sure that your estate is in proper order for you and your loved ones.

For questions about your estate planning options, please feel free to contact us at (203) 404-3974, visit our website at www.rospro.com or drop me an email at jrosen@rospro.com. We can talk with you about your options and put you touch with a qualified estate planning attorney.

Happy planning!