Top 7 Costly Estate Planning Mistakes and How To Avoid Them

1. Where There Is A “Will” Is There Is A Way? The biggest mistake is the failure to plan, having the wrong plan or even having an outdated plan. Everyone can benefit from a will or some other form of estate planning. Avoiding or reducing estate taxes, saving estate administrative costs, specifying who will receive your estate and protecting your family are just a few of the benefits a will can achieve.

2. Understanding the Death Tax System. If you are married, with proper planning you and your spouse can shield double the state and federal exemption amount ($5.0 million federal and $675,000 for New Jersey) from estate tax. The mistake occurs when the first spouse dies and leaves their entire estate to the surviving spouse thereby in effect losing the deceased spouses individual exemption amount. Instead, it is often beneficial for the spouse to leave all or a portion of their estate to a simple trust called an exemption trust (also know as a credit shelter trust).

3. Should Assets be Jointly Titled? Joint assets often have a right of survivorship which transfers ownership at death to the joint owner by operation of law. This bypasses the will. Since probate in New Jersey is relatively straightforward, instead of being an advantage, joint ownership can interfere with an estate plan.

4. What Are The Benefits Of Beneficiary Designations? IRA And Retirement Plan Distributions. A well thought out estate plan can be undermined by an incorrect beneficiary designation. The most common error is naming minor or irresponsible beneficiaries. A trust may be a better designation. Also consider a “Stretch IRA”.

5. Can Life Insurance Be Improperly-Owned? Life insurance death benefits are not subject to income tax. However, they are subject to estate taxes if the policies are owned by the insured at death. A way to avoid this is to have life insurance owned by an irrevocable life insurance trust.

6. Gifting When You Shouldn’t And Not Gifting When You Should. When properly applied, gifting can be an extremely effective way to reduce estate taxes. However, many individuals incorrectly assume that gifting is simple and fail to obtain competent advice.
7. Hiring A Generalist. When hiring a doctor, attorney, mechanic or any type of service profession, I strongly recommend hiring a specialist. Almost without exception, the specialist will have more experience and skill in their area of specialty than will a generalist. This usually translates into higher quality services provided in the most cost effective manner possible.

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