When it comes to estate planning, the biggest mistake anyone can make is to not create a plan at all. However, there are a few areas where people are often tripped up. Whether someone is creating the first version of their plan or they have had a plan in place for some time, they should keep these common mistakes in mind:
Choosing the wrong trustee/executor
Picking the right person to manage your estate is one of the most vital parts of estate planning. In some cases, a family member with a background in finance will fit the bill. However, keep family dynamics and interpersonal relationships in mind. In other cases, it may be better to hire a professional.
Not making regular updates to the plan
As we discussed in a previous post, important life events trigger a need to review and update your estate plan. Marriage, divorce, and the birth of children and grandchildren are essential times to ensure your will aligns with your wishes for your family.
"Selling" property to family members for cheap
For several decades, it was common practice to sell a piece of property to a family member or friend for $1 or some other nominal amount instead of gifting it through a will. However, this practice has serious tax implications. The IRS views these transactions as gifts, which are taxable if they are worth more than $14,000. Moreover, if someone buys a property for $1 and sells it for $1 million, they will have to pay taxes on the difference.
Failing to plan for the death of a beneficiary
It helps to think of this issue as a contingency plan. In the event something happens to one of your heirs, who should take their share? Depending on how the estate plan is set up, the original beneficiary's family can stand in their shoes, or their share can go to another recipient altogether. Without having the specifics laid out, an asset might fall to someone you never intended.