- Misplaced Legacy: Your money may go to the wrong person(s) ‑ or to the right persons but at the wrong time or in the wrong manner: You predecease your wife, who remarries and predeceases her new husband. How much of your estate your children receive? How will your 10 year old or teen age children will handle your family business? What about the child who has a drug or emotional problem? Or the child who hasn't sent you a birthday or anniversary card ‑ in 20 years?
- Uncle Sam comes before your loved ones: In 2011, the estate tax reverts to up to 55 percent of all assets over $1,000,000. Relying on state intestacy laws - the "one size fits all" rules that apply in the absence of estate planning - is a costly mistake since they don't even attempt to save taxes. Why should they? The state and federal government benefit ‑ from the plans you don't make! So instead of cutting your tax in half ‑ or eliminating tax entirely ‑ your heirs will pay ‑ if you don't have a will and don't employ other tax savings techniques.
- Your business gets the business: Like Solomon, intestacy laws attempt to cut everything down the middle ‑ baby, business, and all. So your new spouse may be sharing a business he or she never set foot in with your adult children who have worked in the business since they were teenagers. Or your business may be shared ‑ equally ‑ between your children who work in the business ‑ and those who don't.
- See you in court: If your estate planning doesn't grant specific powers to take action, either state law or the courts will decide if an action (e.g. sell real estate or operate a family business) can occur. Each time your heirs wants to do ‑ even the simplest thing ‑ they'll have to get their attorney to request permission from the court, a potentially expensive and continually aggravating process.
- Affluenza: Once heirs get theirs, there may be no stopping them. Leaving an inheritance outright - rather than in trust - means they get cash and other property outright and without any limits or protection. Are your kids ready to have as much wealth as your spouse? Did you intend that your life savings be invested in college, a mortgage, a business, or a $100,000 red Porsche?
- Let em eat cake: What's a "tax allocation" clause? Without specifying where money to pay estate taxes will come from ‑ or by using a "boilerplate" clause in "economy" documents - it could come from a charity or family member you wanted to exempt from tax. Just ask the daughters of former CBS correspondent Charles Kuralt, whose share of their inheritance paid $350,000 in estate taxes attributable to real estate left to a secret mistress. Without a formula in a trust or will that specifies who pays debts and taxes, it's quite easy for one asset to generate tax that others will have to pay. You leave a million dollars of life insurance and pension proceeds to your children and a million to your spouse. Who pays the taxes? Will your spouse and your children end up ‑ after taxes ‑ with equal amounts? If you haven't checked, how do you know?
- Take the money ‑ and run: Do you really want your son's ex wife to get his share of the family business? How about your daughter's husband's creditors ‑ want them to get a piece of the action? Without planning, you can't protect assets from either in‑laws or outlaws, creditors or predators. Why not? Because without planning, heirs get theirs outright. That means what they've got is up for grabs.
- Equal isn't (always) equitable: One child's a brain surgeon with several children, the other's a single "ne'er do well." Is it O.K. with you that they receive equal shares? Should their shares be managed identically?
- Can I Please? Die without a will and that's a phrase your surviving spouse will have to learn ‑ and get familiar with. If half your estate goes to your spouse and half to your children (as it might if you have no will or trust), just because your spouse is named guardian of the person of your children doesn't mean she'll also be named guardian of their assets. If she is, she'll still have to hire an attorney and petition a court for access to those assets. Some states ‑ to create a check and balance ‑ require someone other than your spouse to be guardian of the property of your minor heirs. That means your spouse will have to go ‑ perhaps hat‑in‑hand ‑ to ask for money to use on the children's behalf.
- Whatever!: If you don't take the time to plan, the lasting message you leave is that you absconded ‑ left in the middle of the night ‑ probably because your heirs weren't important enough. Go ahead. Leave a mess. See who cares! The message you leave is, "You weren't worth the time."
Wednesday, September 15, 2010
Procrastinators: Probable Pitfalls of Postponed Planning
Estate planning allows you to control your property while you are alive and well, take care of yourself and your loved ones in time of disability, and upon your death give what you have, to whom you want, when you want, the way you want, all at the lowest overall financial and emotional cost to you and your loved ones.
Estate planning, however, cannot provide the thrill of a round the world cruise or the latest model Mercedes. So it is not surprising that many procrastinate in hopes of "getting around to it" when they "have the time." What are the probable pitfalls of postponed planning for procrastinators? Here are some typical ones:
Tongue-in-cheek advice on buying life insurance suggests the most efficient date to purchase it is the day before you die. Estate planning has to incorporate your unique family situation as well as you hopes, dreams, desires and values, so even procrastinators shouldn't wait until the last minute, or day.